US housing woes slowing recovery

WASHINGTON: The struggling US housing market is a “significant drag” on the overall economic recovery, Federal Reserve governor Elizabeth Duke told Congress in testimony obtained by Reuters.

“The failure of the housing market to respond to lower interest rates as vigorously as it has in the past indicates that factors other than financial conditions may be restraining improvements in mortgage credit and housing market conditions,” she said.

High rates of foreclosures were likely to persist for a while and push home prices down, Duke said in testimony prepared for delivery to the Senate Banking Committee.

The Fed has in recent months emphasised that turmoil in housing markets, where US homeowners have lost US$7 trillion in equity since 2006 from falling home prices, is a serious impediment to more robust growth.

The central bank released a study of housing woes in January that was criticised by Republican lawmakers for political meddling, but Fed officials have continued to voice qualms about the damage done by housing market setbacks.

Duke said the elevated pace of foreclosures was likely to continue “for quite a while” and would push prices down further. While some retrenchment from the over-eager lending that preceded the 2007/2009 recession had been necessary, current lending caution appeared to be standing in the way of lending even to credit-worthy households, she said.

By Reuters