Bernanke: Weak Housing Has Hurt Consumer Spending

Bernanke: Weak housing has hurt consumer spendingWASHINGTON (AP) - Ben Bernanke says declines in home prices have forced many Americans to cut back sharply on spending and warns that the trend could continue to weigh on the economy for years.

The Federal Reserve chairman drew the connection between home values and consumer spending, which fuels 70 percent of economic activity, on Friday during a speech to the National Association of Home Builders in Orlando.

Bernanke says the broader economy won't fully recover until the depressed housing market turns around. People are spending less because they are stuck in "underwater" homes, which are worth less than what is owed on the mortgage. And home values are falling because of foreclosures and tight credit - even in areas with lower unemployment.

"Recent declines in housing wealth may be reducing consumer spending between $200 billion and $375 billion per year. That reduction corresponds to lower living standards for many Americans," Bernanke said.

The Fed chairman said there's no "silver bullet" to rescue the housing market. Renting out foreclosed homes and reducing or modifying mortgages are among steps that could help.

"Low or negative equity creates additional problems for households," Bernanke said. "It reduces financial flexibility: Homeowners who are underwater on their mortgages cannot tap home equity to pay for emergency health expenses or their children's college educations.

There have been modest signs of improvement in recent months. Sales of previously occupied homes rose in the last three months. Homebuilders are more optimistic after seeing more people express interest in buying this year. And home construction picked up in the final quarter of last year, which helped housing contribute to broader economic growth.

Still, last year was the weakest for new-home sales on records dating back to 1963. Sales of previously occupied homes have also been at depressed levels. And home prices continue to fall.

The Fed issued a white paper last month that included a number of proposals to boost home sales. The paper sparked some criticism. Rep. Scott Garrett, R-N.J., told Bernanke last week during a congressional appearance that he was taken aback that the Fed would offer unsolicited advice to Congress, putting forward proposals which Garrett said mirrored in many ways ideas being pushed by the Obama administration.

Bernanke said the Fed only wanted to provide pros and cons on various approaches, and he said Fed officials remained concerned because the weak housing sector was holding back overall growth.

The central bank has tried to help by keeping its benchmark interest rate at a record low near zero. And the Fed recently signaled that it doesn't plan to raise the rate before late 2014. The Fed's action has led to lower mortgage rates, which normally would encourage more buying and refinancing

Still, the damage from the housing crisis has been so widespread that even the cheapest mortgage rates in history haven't been enough to lift home sales.

Bernanke's speech came a day after the government announced it had reached a landmark $25 billion deal with the nation's biggest mortgage lenders over foreclosure abuses that had occurred after the nation's housing bubble burst in the middle of the last decade.

That deal will require five of the largest banks to reduce loans for about 1 million households at risk of foreclosure. The lenders will also send checks of $2,000 to about 750,000 American who were improperly foreclosed on.

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jakob_oram

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July 01 2013 at 5:01 PM Report abuse rate up rate down Reply
truth 1st

FBI has officially declared gold owners terrorists. Big fed gov’t has discovered that if we the people chose to go back to real money ( gold/silver ) and/or barter they’re history. We allow the fed to exist and they don’t like it. Help fire the fed leaches and start using real money as much as you can. Your local coin dealer has coins for you to exchange your fed res notes. I use silver eagles for services and even gasoline at my favorite mom and pop stores. The gas station owner loves to sell me a tank of gas for 1 silver eagle at face value of 1 dollar and then selling that dollar 40 or so fed res notes. This shows his taxable income on the sale of the gasoline as a -39 dollars ( loss ) and offsets his tax liability by reducing his reg sales profits. If you make the effort most service providers love it. It also reduces your sales taxes to the face value of 1 dollar, its sooo cool!

February 15 2012 at 11:02 PM Report abuse rate up rate down Reply
truth 1st

Fed res dollar printing has increased to keep up with US treasury's need of them as debt buyer of last resort. Euro is doing same for their debt but doesn't hold the luxury as world's res currency. Fed exports inflation to the world, Euro can't & WILL hyper inflate to ZERO. Europe WILL run to the dollar as others trade for gld/slvr. Even with a small demand increase gld/slvr price WILL rise outside the fed's ability to keep suppressed & dollar WILL start its final fall, world WILL panic & gld/slvr will BE the only reserve currency, again. World fiat system is collapsing & we face deep depression. Got Gold? China & India does, why's that you figure?

February 15 2012 at 11:02 PM Report abuse rate up rate down Reply
truth 1st

Fiat banksters around the world are being rejected by the masses. We are mad as hel and we are NOT paying them any more. You can get on board and exchange your fake paper money for real gold/silver money or be left holding wheel barrows of worthless bankster paper, your choice!

February 15 2012 at 11:01 PM Report abuse rate up rate down Reply
marine1942

Only Jon Corzine is smarter than ole Ben

February 13 2012 at 12:06 PM Report abuse rate up rate down Reply
1 reply to marine1942's comment
n1yearocrapleft

this clown along with obamy should both be locked up~~THANK GOD THEIRS ONLY 9 MONTHS OF *HELL* LEFT M THIS *BLACK CLOUD* OVER AMERICA WILL FINALLY BE VAPORIZED. ! !

February 14 2012 at 9:40 AM Report abuse +1 rate up rate down Reply
knkdnsr

What do they expect. Banks do not want to lend money because of low interest rates, borrowers in most cases do not have the 20% down payment and the continued high cost of fuel is draining our economy.
Congress over the years created this problem but refuse to correct it. Oil should have never been allowed to be traded on the commodities change. It actually removed oil from what we used to have which was the true free market. That free market is what caused OPEC to be formed. It stopped those countries from cutting each others throat to sell oil.

February 13 2012 at 10:19 AM Report abuse rate up rate down Reply
mdunnjr

That $1500 to $2000 will ceretainly help those folks forclosed on a good starting point--give me a break--all politics--disgusting politics.

February 13 2012 at 9:51 AM Report abuse rate up rate down Reply
mdunnjr

When did a house become a guaranteed money making investment? I must have missed that course.

February 13 2012 at 9:50 AM Report abuse +1 rate up rate down Reply
mdunnjr

No equity lines to tap! amazing how a guy in this position could be so stupid. Does he have a solution--maybe the rich should pay off everyone that's not rich mortgage.

February 13 2012 at 9:48 AM Report abuse rate up rate down Reply
johnskii

Hey Ben you failed to mention the artificially manipulated high oil and gasoline prices. Just reminding you in case you forgot.

February 13 2012 at 9:38 AM Report abuse rate up rate down Reply