Fed boss reviews housing crisis

12.05.08
By Lewis Green

The loss of your home is often referred to as great a source of stress as divorce or bereavement. With the steep rise in foreclosure rates afflicting an increasing number of Americans, more homeowners find themselves facing an uncertain future.

This is a fact far from lost on the man in charge of the Federal Reserve, one of the leading players in the recent market meltdown, who insists the Fed has been actively supporting efforts to prevent unnecessary foreclosures.

Speaking at a housing conference in Washington yesterday, Ben Bernanke admitted the outlook remained poor and acknowledged the housing market had been "in turmoil" over the past 16 months.

As many as 2.25 million foreclosures were projected for the current year, a sharp increase on the less than 1 million seen before the current crisis took hold.

What's more, 15 to 20 percent of homeowners could now be "under water", in other words owing more money on their property than its current market value.

Bernanke was also eager to chart the meteoric rise and fall of the housing market since the turn of the decade. He explained how home sales had ridden out the 2001 recession pretty much unscathed before rising dramatically over a number of years.

Meanwhile, house prices experienced a similarly sharp rise, more than doubling in certain metropolitan areas during that period.

However, this unrivalled time of plenty did not come without a downside. Encouraged by the buoyant market, home loan providers became increasingly relaxed in their lending practices - a trend culminating in the subprime crisis which first reared its head in summer 2007.

"The housing market remains central to the economic and financial challenges that we face. Because housing and mortgage markets are tightly interlinked with the rest of the economy, actions to strengthen financial markets and the broader economy are important ways to address housing issues," Bernanke told the conference.

"By the same token, steps that stabilize the housing market will help stabilize the economy as well."

Decreasing the number of preventable foreclosures would not only assist families to stay in their homes but generate wider economic benefits too.

In view of this, policy initiatives to keep Americans in their homes wherever possible must remain high on the agenda, he maintained.

Bernanke's comments follow news earlier this week that the U.S. economy officially entered into recession in December 2007, confirming most analysts' expectations.

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