Fed chair: Bad housing market impedes economic recovery

The weak housing market remains a "key impediment" to faster economic recovery, Federal Reserve Chairman Ben S. Bernanke told home builders Friday in Orlando.

In a speech streamed live on the Internet, Bernanke said that although resurgent housing markets had stimulated recovery in the past, that was not the case this time.

It has been a frustratingly slow recovery, Bernanke said.

The nation is awash in 1.75 million homes unoccupied or for sale. In the first half of the last decade, the figure was 1.25 million, but that was during the housing boom when demand was at its peak.

The surplus varies by region, Bernanke said. Nationally, it is 2.4 percent of the total housing inventory, but in Florida, hard hit by foreclosures, it is 3.2 percent.

What's worse, Bernanke said, two million distressed homes have been entering the market each year, and "that high rate will continue for awhile."

Demand has been constrained by lower household formation, high unemployment, the shortage of available mortgage credit, and the fact that "housing is not viewed as certain as an investment" as it was a few years ago, he said.

Declines in house prices have reduced home equity 50 percent in aggregate, a $7 trillion loss, and one in five homeowners owes more than his or her house is worth, he said.

The imbalance in supply and demand has led to "a drop in home values of historic proportions - 40 percent in real or inflation-adjusted terms," Bernanke said.

The result has been fewer than 500,000 new-home starts annually since 2009, compared with 1.5 million in years before the housing collapse, he said.

The situation has led to the strengthening of the rental market. Bernanke suggested there was an opportunity to use this as a way out the morass by turning bank repossessions in hard-hit metro areas into rentals purchased in pools by investors.

Bernanke said the idea "was not a silver bullet," but with the market out of balance, "we need to continue to develop policies to help housing get back on its feet."