The Federal Reserve Board Chairman speaks
Recently, Federal Reserve Chairman Ben Bernanke said in a speech that he expects to see a very high rate of foreclosure starts this year, but hopes to see a decline by next year, pointing to their negative impact at a macroeconomic level.
“The most important transmission mechanism is that, so long as foreclosure are creating an ongoing supply of housing vacancies, we will be seeing continued softness in house prices,” Bernanke said, pointing to foreclosures as one of the reasons a recovery will continue to be weak.
Real estate blogger Tom Royce said, “The slow walk down to the bottom of the real estate market has been one of the most destructive economic calamities in the history of the United States. The myriad of government programs and investments has led to the suffering and impoverishment of millions of families.”
“Let the market find it’s bottom naturally. At that point we can recover, buyers will have confidence, sellers will not have illusions, and we can move forward honestly. If we had followed this advice in 2007 we would not be having this discussion today,” Royce opined.
Is it only foreclosures that weaken the housing sector?
So foreclosures are bad and continue to weaken the economy, right? Interestingly, if you look at the Federal Reserve Board minutes from January and those from March side by side, there are but a few words different, with the added line that most impacts the real estate sector being, “investment in nonresidentialstructures is still weak, and the housing sector continues to be depressed.”
From speech to speech, there is not a consistent message as to what the true weak points are. Be it foreclosures or lack of investment slowing a recovery or even regulation of Fannie Mae and Freddie Mac, it doesn’t seem like there is a universal answer as to what the roadmap toward recession recovery looks like.