Federal Reserve: No recovery without housing market recovery

HAMISH_MCTAVISH

Fed Policy Makers Urge More Housing Aid

Three Federal Reserve policy makers said the U.S. government should try new ways to spur the housing market without agreeing about how much more the central bank needs to do to bring down interest rates.

New York Fed President William C. Dudley said in New Jersey yesterday that “additional housing policy interventions” can help boost growth, even as the Fed should consider further easing.

Boston Fed President Eric Rosengren took the more-aggressive position of supporting the purchase of mortgage-backed securities, while Fed Governor Elizabeth Duke said in Virginia that the central bank’s current monetary stance is “appropriate.”

Chairman Ben S. Bernanke this week urged lawmakers to do more to revive the housing market, calling it an impediment to the economic recovery. He delivered a 26-page staff report to Congress outlining possible solutions.

“Bernanke realizes that we need to boost housing and if housing does not recover, what the Fed does will be for naught,” said Sung Won Sohn, former chief economist at Wells Fargo & Co. who is now a professor at California State University-Channel Islands in Camarillo.

The chairman and his colleagues “are trying to jawbone” the Obama administration, Congress, Fannie Mae and Freddie Mac to support the housing recovery, Sohn said.

http://www.bloomberg.com/news/2012-01-06/fed-policy-makers-urge-more-housing-aid-while-split-on-central-bank-s-role.html

Well it seems the Americans have at last grasped the basic fact that there can be no sustainable economic recovery without a housing market recovery.

Shame they're sitting on a 13% over-supply..... A problem that the UK thankfully doesn't have, hence why our prices are just 10% below peak and their prices are now nearly 40% below peak.

Much like in Ireland, for large parts of the US (especially areas like Detroit) the only solution will be a Bulldozer.

jay213

okay, so get rid of houses to make houses more expensive to help everyone? wow, it sounds so logical. Forget the fact that more expensive houses leave people with less income to spend in stores and on services to boost the economy.

HAMISH_MCTAVISH

jay213 wrote: »

okay, so get rid of houses to make houses more expensive to help everyone? wow, it sounds so logical. Forget the fact that more expensive houses leave people with less income to spend in stores and on services to boost the economy.

I usually ignore such factually inaccurate nonsense, but OK, I'll bite this time.

Where do you think the money goes?

Generali

HAMISH_MCTAVISH wrote: »

http://www.bloomberg.com/news/2012-01-06/fed-policy-makers-urge-more-housing-aid-while-split-on-central-bank-s-role.html

Well it seems the Americans have at last grasped the basic fact that there can be no sustainable economic recovery without a housing market recovery.

Shame they're sitting on a 13% over-supply..... A problem that the UK thankfully doesn't have, hence why our prices are just 10% below peak and their prices are now nearly 40% below peak.

Much like in Ireland, for large parts of the US (especially areas like Detroit) the only solution will be a Bulldozer.

The biggest problem with the US housing market is that if you buy a foreclosed on house, you also 'buy' any outstanding unpaid property taxes. A house that you pay a dollar for may have thousands of dollars of unpaid tax in addition.

Scrapping or reducing that liability would go some way to allowing the market to fix things. There are groups of investors buying up huge areas of places like Detroit and making foreclosed homes into something worth living in. Companies are starting to move back to the 'rust belt' as they can find cheap land and cheap labour (labor?). People will work for less in places like Detroit as they can find very affordable housing.

Getting rid of this tax on mobility and easing some zoning restrictions would be a much more effective way of resolving these problems I think than knocking down perfectly good structures.

The housing market is part of the problem but it is also a symptom of a wider problem: there is too much debt. Either savers accept that they've lent money to bankrupt institutions in many cases and take a 'haircut' or the economy will face years of slow growth as debtors (including Governments) struggle to repay debt.

HAMISH_MCTAVISH

Generali wrote: »

There are groups of investors buying up huge areas of places like Detroit and making foreclosed homes into something worth living in.

They are also bulldozing entire suburbs of Detroit and turning them back into farmland.

"Tired of Detroit's status as the symbol of everything wrong with urban America, its new mayor has come up with a radical solution: to bulldoze the city.

The 2010 census is expected to reveal a population of about 800,000, down from a peak of 1.8 million in the Motor City heyday of the late 1950s.

The long decline of the car industry and all its spin-off business has been exacerbated by the collapse of a housing market that has left prices close to what they were 50 years ago, when lifestyle magazines featured Detroit as the most desirable city in the United States.

Decent three-bedroom homes can be bought for $10,000, but no one wants to buy."
http://www.telegraph.co.uk/news/worldnews/northamerica/usa/7778335/Detroit-to-bulldoze-thousands-of-homes-in-fight-for-survival.html

Generali wrote: »

Companies are starting to move back to the 'rust belt' as they can find cheap land and cheap labour (labor?). People will work for less in places like Detroit as they can find very affordable housing.

That sounds good in theory, but it just hasn't been the case in reality.

Here's Detroit employment figures for the last few decades:



And from the accompanying article:

Since 2007, about 100,000 workers have left the Detroit labour force. And despite the real improvement in the economic outlook over the past few months, the bleeding goes on.
http://www.economist.com/blogs/freeexchange/2011/02/urban_economics

The reality is you've been able to get cheap as chips, almost free, houses and commercial property in Detroit for many, many years now and it just hasn't made the slightest bit of difference.

If the bears were right, that cheaper land and housing costs made places more attractive to employers and industry, then Detroit would be booming, as would the North of England.

Obviously, they're not....

Graham_Devon

Shame they're sitting on a 13% over-supply..... A problem that the UK thankfully doesn't have,

Think you said it all there Hamish.

I'd rather have an oversupply and people with the proper accomodation than be thankful people are overcrowded and having to move around just so I feel richer.

julieq

At last. Graham's twigged that high house prices here are due to undersupply.

MASSIVE step forwards. Now what do we think would fix that?

HAMISH_MCTAVISH

Graham_Devon wrote: »

I'd rather have an oversupply and people with the proper accomodation than be thankful people are overcrowded and having to move around just so I feel richer.

Serious Oversupply = Economic Devastation (for example Ireland)

Or....

Economic Devastation = Serious Oversupply (for example Detroit)

Whichever way you want to argue the cause and effect, the correlation is indisputable, and places like Ireland and Detroit are the perfect example of both scenarios.

And it's not something I'd wish on my worst enemy, let alone the county in which I live.....

ILW

julieq wrote: »

At last. Graham's twigged that high house prices here are due to undersupply.

MASSIVE step forwards. Now what do we think would fix that?

Reduction in population growth would be one solution.

HAMISH_MCTAVISH

ILW wrote: »

Reduction in population growth would be one solution.

Which would only cause a bigger problem.

ILW

HAMISH_MCTAVISH wrote: »

Which would only cause a bigger problem.

Depends on where the reduction comes from. A smaller but better educated, more motivated and higher paid demographic could be perfectly sustainable.