Eric Rosengren, President of the Federal Reserve Bank of Boston, spoke at a conference hosted by the Connecticut Mortgage Bankers Association and the Warren Group. He had some pretty pessimistic words about the housing market.
Despite predictions that the economy will see growth of 3.5-4 percent in 2011, he described the housing sector as “moribund” and said that housing “will not provide as much support to this recovery as it has previous ones“. He also said that there would only be a “gradual improvement in the economy and employment“.
Rosengren noted that while mortgage rates are close to historical low points, this does little good if people cannot attain loans or refinance their current mortgages. Rosengren notes that lending has dramatically shifted away from those with low credit scores to those with much higher scores. Of this Rosengren says:
“While I am certainly not advocating going back to the loose lending standards of, say, 2006, I think we should be aware of how changes in the distribution have implications for the housing recovery. In particular, I would suggest that current lending standards are another reason the housing sector’s role in the recovery is likely to be weaker than usual”.
In addition to the availability of credit, the Boston Fed President said that the high vacancy rate in rentals and houses is continuing to put a lot of downward pressure on home values. This is something that I and many others have been saying for months, and is one reason that I am down on the housing market in 2011. Simply put, there is a huge excess supply of homes, and not much demand for them. Basic economics tells us that this will shift the equilibrium point, and that prices must fall. Certainly there could be mitigating factors that could change this (such as the ramifications of the ongoing foreclosure/robo-signing/securitization mess), but if all things remain the same we will likely see average home prices fall in this country in the coming year.
Rosengren did finish on a somewhat more sanguine note, saying that despite the risks:
“the economy is in a much better place than it was one or two years ago. Fiscal and monetary policy responded aggressively, and in my view appropriately, to avoid what would have been a much more severe outcome, absent action”.
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