Bill Dudley, president and CEO of the Federal Reserve Bank of New York and vice chair of the Federal Open Market Committee (FOMC) told a conference audience Friday that despite some extraordinary measures taken by FOMC the recovery has been disappointing. Dudley spoke to a conference co-sponsored by the Federal Reserve and the Rockefeller Institute of Government titled "Distressed Residential Real Estate: Dimensions, Impacts, and Remedies.
Dudley said that while measures taken by the Fed have certainly helped to make the economy stronger than it otherwise would have been, over the three year period from mid-2009 to mid 2012 the real output of the economy has grown at a compound annual rate of just over 2 percent. Thus employment gains have been modest and unemployment remains unacceptably high.
He pointed to several headwinds restraining economic growth, one that the housing market has failed to respond fully to the significant easing of monetary policy. While it is true that some housing indicators have improved lately such as increasing housing starts and home sales and stabilizing home prices, the absolute level of starts and sales remain quite low, especially when viewed on a per capita basis.
There is also a considerable variation in market conditions across the country and the worst performing areas are still experiencing high volumes of distressed sales and annual price declines of around 5 percent. This means that, while housing's contribution to growth has finally turned positive, it has much less impact that in previous recoveries.
Dudley said there are several factors behind the sluggishness of the market. Mortgage credit availability, while improving, is still limited, especially for borrowers with less than perfect credit. Many more borrowers are underwater and may not be able to refinance or sell and there are still huge inventories of properties that have either been foreclosed or are moving toward it.
He said that the New York Fed is deeply committed to helping to resolve the housing crises and continues to monitor the market and analyze its impact on the economy while the bank works with community groups that aid distressed homeowners and the Fed's lawyers work pro bono with homeowners facing foreclosure. Fed researchers and market analysts have developed proposals to mitigate current problems and improve the future structure of housing finance.
The Fed released data about foreclosure
inventories and owned real estate (REO) at the conference, presented through a
series of national, state, and regional interactive maps. The national maps present three scenarios for
foreclosure inventories, showing the difference in the increase or decrease in
owned real estate (REO) if the current trend in the number days a property
remains seriously delinquent and in foreclosure continues its pattern of
increases. In that instance the
inventories of REO in most states would decline but would increase
significantly in a few states, especially New York and New Jersey.
In the second scenario, assuming that the average number of days stabilizes, the REO in most Western states would decline while states in the Northeast would have sizable increases.
If the third scenario should happen, i.e. the average number of days a loan remains delinquent declines, then REO would increase nearly everywhere and especially in New York and New Jersey. Only in California and Arizona would the situation improve.
Maps released by the Federal Reserve present information on the State and Regional levels.