Fed Chairman Addresses the Housing Market, Subprime Lending
On June 5, Federal Reserve Chairman Ben Bernanke addressed via satellite the 2007 International Monetary Conference in Cape Town, South Africa. Bernanke’s choice of topics in his address accentuates the importance of the U.S. housing market in the global economy as well as the importance of the subprime mortgage issue in global financial markets.
His comments on the current condition of the U.S. housing market and the near-term housing outlook were a bit more sobering that other recent Fed statements on housing.
Bernanke stressed that the downward adjustment in the housing sector “is still ongoing,” and he allowed as how the contraction in residential construction “now appears likely to remain a drag on economic growth for somewhat longer than previously expected.”
Bernanke pinned large responsibility for the recent weakening of housing demand on the subprime-related turmoil in the mortgage market, and he noted that recent subprime developments “add somewhat to the usual uncertainty in forecasting housing demand.”
He went on to say that the subprime-related problems “will serve to restrain housing demand, although the magnitude of these effects is difficult to quantify.”
We couldn’t agree more with that assessment, although we have to go on record with our forecasts.