Fed Vice Chair Janet Yellen, who has been pretty sharp in her assessments of the economy in recent years, spoke about housing today in Cleveland. Here’s the entire speech.
I’ll pull a few key excerpts out here. No particular surprises for those who have been following housing issues closely.
On the State of the Housing Market:
One factor depressing house prices is the large number of “distressed” home sales. [. . .]
Housing market conditions are also being hurt by the large inventory of empty and unsold homes in the United States. Nearly 2 million homes were estimated to be vacant in the first quarter of 2011. Although this number is down some from the highs seen in 2008, it is about 60 percent higher than the average level over the 20 years before the 2008 surge. And, with the pipeline of delinquent and foreclosed homes overflowing, the inventory of empty and unsold homes will likely stay elevated for some time, which will maintain downward pressure on house prices and damp construction of new homes.
Recovery in the housing market is being restrained further by tight mortgage credit.
On the The Housing Market in Low- and Moderate-Income Communities:
The greater decline in house prices in low- and moderate-income neighborhoods has had several unfortunate consequences for mortgage borrowers. As of March 2011, borrowers with prime mortgages who lived in these neighborhoods were twice as likely to be underwater as borrowers with prime mortgages in high-income neighborhoods. Because houses are, on average, a much larger share of assets for homeowners in low- and moderate-income neighborhoods, these homeowners had few other assets to draw upon to compensate for the drop in house prices.9 As a result, borrowers in these neighborhoods who suffered a job loss or other economic misfortune were more likely to default on their mortgages. Indeed, 13 percent of mortgages originated to borrowers in low- and moderate-income neighborhoods were 90 days or more overdue in the first quarter of 2011, compared with 6 percent of mortgages originated to borrowers in high-income neighborhoods.
The higher rates of delinquency suggest that homeownership may have been a riskier proposition over the past decade for households in low- and moderate-income neighborhoods than in high-income neighborhoods. Delinquency rates are higher, in part, because borrowers in these communities were more likely to end up in complicated or inappropriate mortgage products, unacceptably often as a result of unfair and deceptive lending practices. But borrowers in these communities may also be more sensitive to house price declines because they may have fewer financial resources outside of housing, and they may have had little equity in the property to begin with.
On Looking Forward:
Here Yellen discusses three Fed initiatives: revisions to the Community Reinvestment Act that might reduce the number of future foreclosures and to encourage occupation of vacancies, development of national servicing standards, and changing rules regarding mortgage credit.
It’s dry stuff, and there’s no getting around, as Yellen notes, we “can envision no quick or easy solutions for the problems still afflicting the housing market. Even once it begins to take hold, recovery in the housing market likely will be a long, drawn-out process.”