Bernanke: Despite Hopeful Signs, Markets Remain Tight

eral Reserve Chairman Ben Bernanke foretold the ‘bottoming’ of the crisis facing the housing market,[/b] but he warned that problems would remain for both the residential and commercial real estate markets. In testimony before the Joint Economic Committee of Congress, Bernanke said the severity of the recession has begun to show signs of abatement, with a small degree of economic growth possible for later in the year. He also believes some hopeful signs are evident within the free-falling housing market. ‘The housing market, which has been in decline for three years, has also shown some signs of bottoming,’ said Bernanke. ‘Sales of existing homes have been fairly stable since late last year, and sales of new homes have firmed a bit recently, though both remain at depressed levels. Although some of the boost to sales in the market for existing homes is likely coming from foreclosure-related transactions, the increased affordability of homes appears to be contributing more broadly to the steadying in the demand for housing. ‘In particular, the average interest rate on conforming 30-year fixed-rate mortgages has dropped almost 1.75 percentage points since August, to about 4.8 percent,’ he continued. ‘With sales of new homes up a bit and starts of single-family homes little changed from January through March, builders are seeing the backlog of unsold new homes decline – a precondition for any recovery in home building.’ Bernanke noted the boom in refinancing based on the decline in mortgage rates, yet he acknowledged the tightening of available funds for home loans. ‘The supply of mortgage credit is still relatively tight, and mortgage activity remains heavily dependent on the support of government programs or the government-sponsored enterprises,’ he said. But Bernanke warned that the commercial real estate sector is continuing to feel the burden of the economic crisis. ‘Conditions in the commercial real estate sector are poor,’ he said. ‘Vacancy rates for existing office, industrial, and retail properties have been rising; prices of these properties have been falling, and, consequently, the number of new projects in the pipeline has been shrinking. ‘Credit conditions in the commercial real estate sector are still severely strained, with no commercial mortgage-backed securities (CMBS) having been issued in almost a year,’ he added. ‘To try to help restart the CMBS market, the Federal Reserve announced last Friday that recently issued CMBS will, in June, be eligible collateral for our Term Asset-Backed Securities Loan Facility.’ SOURCE: Federal Reserve


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