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June 9 (Bloomberg) -- Federal Reserve Vice Chairman Janet Yellen said the housing market will undergo a “long, drawn-out recovery” and the Fed is working with other agencies to prevent foreclosures and clear the stock of vacant properties.
“Looking forward, I unfortunately can envision no quick or easy solutions for the problems still afflicting the housing market,” she said in a speech today in Cleveland. “Even once it begins to take hold, recovery in the housing market likely will be a long, drawn-out process.”
Residential construction and real estate, except rentals, still showed “widespread weakness” last month, the central bank said yesterday in its Beige Book survey of the economy. Almost 2 million homes were vacant as of the first quarter, and a large number of distressed sales is one reason house prices remain low, Yellen said.
“For its part, the Federal Reserve will continue to use its policy tools to support the economic recovery and carry out its dual mandate to foster maximum employment in the context of price stability,” the 64-year-old vice chairman said in remarks at a Cleveland Fed policy conference.
The U.S. economy expanded at a “steady pace” during May in all but four of the Fed’s 12 regions, according to the Beige Book report. Fed Chairman Ben S Bernanke said this week that the “frustratingly slow” U.S. recovery warrants sustained monetary stimulus, even while growth should speed up in the second half of the year.
With an overflowing pipeline of delinquent and foreclosed homes, “the inventory of empty and unsold homes will likely stay elevated for some time, which will maintain downward pressure on house prices,” Yellen said today.
Tight mortgage credit is hurting the housing recovery, and “more households should be able to benefit from the greater affordability” as credit conditions improve, she said. The Fed is now urging lenders to pursue alternatives to foreclosures and proposing to have all mortgages meet higher underwriting standards, the policy maker said.
Home prices in 20 cities dropped in March to the lowest level since 2003, showing housing remains mired in a slump almost two years into the economic recovery. The S&P/Case- Shiller index of property values fell 3.6 percent from March 2010, the biggest year-over-year decline since November 2009, the group said in a report released on May 31.
A further decline in property values of 10 percent to 25 percent in the next five years “wouldn’t surprise me at all,” Robert Shiller, the economist who co-founded the index, said at a conference in New York today.
U.S. stocks rose for the first time in seven days and the Dollar Index climbed as the trade deficit narrowed amid record exports and the cheapest valuations of the year lured equity investors. The Standard & Poor’s 500 Index advanced 0.7 percent to 1,289.00 at 4 p.m. in New York after six straight days of losses, its longest slump since February 2009. The Dollar Index rose 0.4 percent after falling as much as 0.3 percent.
Fed officials plan to meet in Washington on June 21-22, just a week before the scheduled end of the central bank’s $600 billion bond purchase program. They’ve spurred growth by holding the main interest rate near zero since December 2008 and expanding the Fed’s balance sheet to $2.79 trillion.
--With assistance from Robert Willis in Washington and John Gittelsohn in New York. Editors: James L Tyson, Paul Badertscher
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