By Vicky Schmelzer
NEW YORK (MNI) – New York Federal Reserve Bank President William
Dudley Monday said housing remains at the top of the list of key
economic headwinds, along with state and local government layoffs,
Europe and the end of stimulus — and that the Fed could use some help
reinforcing the housing sector.
Speaking to Fordham University’s Gabelli School of Business in the
Bronx, Dudley acknowledged, “Growth in 2011 has been disappointing,”
despite the “waning” of some important negative temporary factors.
“Energy prices are no longer rising rapidly,” he said.
“Manufacturing growth has rebounded. Sales of cars and light trucks have
begun to recover. In addition,” he went on, “business investment in new
equipment and software is expanding, business investment in
nonresidential buildings is recovering, and export growth remains
healthy.”
Nevertheless, he said, with continued modest growth the most likely
outcome, “This sluggishness convinces me that other, more persistent
factors must also be holding back economic growth,” adding to downside
risks.
“Problems in the housing market are a serious impediment to a
stronger economic recovery,” Dudley said. “Obstacles to refinancing and
access to credit for home purchases are limiting the support provided by
low rates to house prices and consumption.”
“I do not think that monetary policy is all-powerful,” he said.
“To get the strongest possible recovery we need reinforcing action in
areas such as housing and fiscal policy.”
Meanwhile, high unemployment keeps feeding the foreclosure pipeline
and pressures housing prices. “Breaking this vicious cycle is one of
the most pressing issues facing policymakers,” he said.
“Stabilizing the housing sector is particularly important because
housing equity is an important part of household wealth,” he said. ”
This calls for a comprehensive approach to housing policy, starting with
an urgent effort to remove the obstacles that make it difficult for all
borrowers to refinance at today’s low mortgage rates, but extending
beyond this to tackle other problems weighing on housing.”
As reported by Market News International last week, the Obama
administration and the Federal Housing Finance Agency was expected to
announce Monday an overhaul of a refinancing program that could add up
to a million more borrowers.
The FHFA confirmed this, announcing not too long ago that the 125%
loan-to-value limit on government-sponsored enterprise is being
eliminated and the program’s end-date is being extended to December 31,
2013.
“Taken together, such efforts could help shift people’s
expectations about future house prices,” Dudley said. “If prospective
homeowners no longer fear that prices could decline further, they will
be more willing to enter the market to take advantage of reduced prices
and low financing costs, and existing homeowners will feel more
confident about spending.”
A second recommendation, Dudley said, would be to have more
progress “addressing the long-term fiscal challenges facing the country
in a manner that is credible and supports economic recovery.”
Stabilizing fiscal policy would be “important to reassure
households and business that the U.S. budget is on a sustainable path,
and also “would be important from a larger confidence perspective —
demonstrating to our citizens and the world that the political process
can still work to make tough choices in the national interest.” He said
he hoped the congressional super committee doesn’t “squander” its
opportunity to contribute and important step forward.
On Europe, Dudley said, “The sovereign debt crisis in Europe has
weakened the outlook for global growth and with it, U.S. exports. These
problems have also contributed to pressures in financial markets
globally that have resulted in a decline in stock market wealth.”
Although the effects are more acute in Europe, “there are
spillovers to our nation and we need to monitor them carefully.”
On inflation, Dudley said he still expects the rate to fall late
this year next. “Some non-commodity prices have increased a bit more
than expected over the past months, but I expect those to subside, as
well.” He said rising rents “are likely be constrained by the large
supply of vacant homes. Likewise, the surge in prices of apparel and new
vehicles should soon be over.”
Corporate profit margins “are quite high, likely prompting greater
price competition going forward. Moreover, households’ inflation
expectations remain well anchored.”
Regionally, Dudley said about 17% of household debt in the Bronx is
delinquent, and delinquencies are rising.
** Market News International New York Newsroom: 212-669-6430 **
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