Fed Reserve Governor Duke on the "Prescriptions for Housing Recovery"

dennis-norman-st-louis-realtor-housing-boom-and-bustBefore you go getting too excited over my headline, I should point out that, even though Fed Reserve Board Governor Duke’s presentation today at the National Association of REALTORS mid-year meeting in Washington D.C. was titled “Prescriptions for Housing Recovery“, Governor Duke opened her remarks with “I wish I had such a prescription”. She went on to say that it is difficult to think of a single thing that, by itself will generate a sustainable recovery in housing. She did say, however, that she saw some policies that will help reduce the shadow inventory of houses in the foreclosure pipeline as well as improve the availability of financing to potential home buyers.

Highlights of Governor Duke’s speech on the housing market…

  • It was only 6 years ago that the housing market was booming and the home ownership rate was at 69 percent. Total housing wealth at the time was almost $23 trillion.
    • Since then, home prices have fallen by about 1/3 meaning about $7 trillion in housing wealth was lost and the home ownership rate has dropped to 66 percent.
  • There are about 2.2 million home loans in the foreclosure process and another 1.7 million loans that are seriously delinquent (3 or more payments behind)
    • More than 40 percent of the loans in foreclosure are more than two years delinquent.
  • Encouraging is the fact that new mortgage loan delinquencies are decreasing.
  • Also some encouraging news with home prices…they still continue to fall year-over-year but the pace of decline is less and the month-over-month numbers have shown improvement for 3 months.
  • Over 45 percent of the cities where Corelogic tracks home prices have seen home prices rise more than 1 percent in the past 3 months…this is the most since early 2006
  • Recent indicators of housing construction activity have also been somewhat encouraging. Housing starts and permits have edged up from very low levels, and the attitudes of builders and REALTORS about housing market conditions have improved.
  • Demand for owner-occupied housing remains stubbornly soft. An important driver of housing demand is household formation. Although household formation typically falls during economic downturns, it has been especially weak this time around. Since 2007, household formation has been running at three-fourths of its normal rate of about 1 million households per year.
  • Many potential homebuyers are delaying home purchases because they are worried about their income or employment prospects.
  • Unfortunately, some buyers who would like to purchase a home are unable to do so because they are unable to obtain a mortgage. According to the Federal Reserve’s quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices, underwriting standards for residential mortgages tightened steadily from 2007 to 2009, and they do not appear to have eased much since then.2


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