By Caroline Salas Gage and Jeff Kearns
NEW YORK - Federal Reserve Bank of New York President William C. Dudley said weakness in the housing market is one of the main forces creating a “disappointing” economic recovery.
“While there are several headwinds that have been restraining economic growth, a key impediment is that the housing market has failed to respond fully to the significant easing of monetary policy,” Dudley said in New York today in welcome remarks for a conference on distressed residential real estate.
The Federal Open Market Committee last month announced a third round of asset purchases and extended its horizon for near-zero interest rates at least through the middle of 2015. The Fed is buying $40 billion of mortgage-backed securities a month to boost housing and fuel growth and employment.
The “sluggishness” in the housing market has stemmed from “impaired” mortgage credit availability and “large volumes” of distressed properties in the aftermath of the financial crisis, Dudley said.
While housing starts and sales are “trending up gradually” and prices have “begun to rise modestly” after stabilizing, the level of starts and sales remains “quite low,” Dudley said.
“The net result is that while housing’s contribution to growth has finally turned positive, its magnitude is far below that experienced in previous recoveries,” he said.
Purchases of new U.S. homes hovered close to a two-year high in August, the Commerce Department said last month. S&P/Case-Shiller data showed Sept. 25 that home prices in July advanced 1.2 percent from the previous year, the largest 12- month gain since August 2010.
The Standard & Poor’s 500 Index climbed 0.4 percent to 1,467.44 as of 12:45 p.m. in New York, rising for a fifth straight day after the unemployment rate fell to 7.8 percent, the lowest since 2009. The yield on the benchmark 10-year Treasury note rose 0.05 percentage point to 1.72 percent.
Dudley said the New York Fed is “deeply committed to contributing to efforts to resolve the housing crisis that continues to impede our economic performance.”
Fed Governor Elizabeth Duke said today in a speech at the conference that even within metropolitan areas with rising prices during the past year, one fourth of postal codes showed declining prices, citing data from CoreLogic compiled by researchers at the central bank.
Those ZIP codes with falling prices “have also experienced rising vacancy rates more often” than in other ZIP codes, she said.
“Vacant homes can be more than just an eyesore; they can have substantial negative impacts on the surrounding community, impacts that are felt most acutely by the neighbors and communities that must cope with the dangers and costs of vacant buildings,” Duke said. “Homes that have been vacant for a long time tend to fall into severe disrepair.”