Bernanke to home builders: “U.S. housing markets remain out of balance”

We’ve seen a small uptick in residential construction of late, and it’s virtually assured that residential investment will contribute positively to GDP this year.

But we’re talking about a very low level — 2012 will still be one of the worst years for new home construction since the end of World War II.

Just take a look at Calculated Risk‘s graph for housing starts over the last few decades:

Yesterday, Fed chairman Ben Bernanke addressed the National Association of Home Builders in Orlando. The full text is here. Bernanke’s concluding paragraph:

In sum, the economic recovery has been disappointing in part because U.S. housing markets remain out of balance. Many local markets have an overhang of empty and foreclosed homes, and many potentially creditworthy homebuyers cannot obtain mortgages. The weak housing market also impairs homeowners’ financial health and diminishes the quality and stability of neighborhoods and communities. For these reasons, and because the troubled housing market depresses construction activity and employment, we need to continue to develop and implement policies that will help the housing sector get back on its feet. No single solution will be sufficient. But sustained efforts to address the many interlocking factors holding back the housing market will pay dividends in the long run.

Bernanke discusses lots of details in the talk, but I was especially interested in his rather lengthy remarks about REO to rental programs to deal with vacant and foreclosed homes:

According to Federal Reserve staff calculations, most REO properties are in neighborhoods with median house values and incomes that are roughly similar to the medians for the metropolitan area overall.15 Moreover, these properties are not unusually far, in terms of commuting times, from where jobs are located.16 We have compared computations of the expected annual cash flows from renting properties to the discounted prices that REO property holders typically receive when selling a home. The comparison suggests that some REO holders might come out ahead by renting, rather than by selling, some of their properties.

Moreover, keeping paying tenants in homes–including leasing to the former owners at market rents–may, in some cases, be the best way to maintain property values and the quality of neighborhoods. REO-to-rental programs could potentially also minimize the amount of time that a vacant property languishes in REO inventory. That is, appropriately structured programs could help some involuntary renters become owners again by giving them options to purchase the homes they are renting.

REO-to-rental programs are not a “silver bullet” for the housing market, and, indeed, implementing them presents some challenges.

There is obviously much more in the full speech, linked above.