Bernanke's speech to home builders:"housing may no longer be viewed as the secure investment it once [View all]

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http://www.chicagotribune.com/business/sns-rt-us-text-bernankestre8191hc-20120210,0,7803401.story

WASHINGTON (Reuters) - Below is the text of Federal Reserve Chairman Ben Bernanke's speech to the 2012 National Association of Home builders International Builders' Show, Orlando, Florida:

Housing Markets in Transition

The economic recovery began more than two years ago, but it doesn't feel like much of a recovery for many Americans--certainly for those of you who depend on the housing sector for your living, as well as for the millions of others who have seen their home values plummet or lost their homes through foreclosure. Though some progress has been made in reversing the losses in jobs and income sustained during the recession, the pace of expansion has been frustratingly slow and the unemployment rate remains very high by historical standards. The state of the housing sector has been a key impediment to a faster recovery. In the typical economic recovery, a resurgent housing sector helps fuel reemployment and rising incomes. But as you know all too well, that scenario has not played out this time. Although the precipitous declines in construction that began in 2006 are, thankfully, now behind us, homebuilding remains depressed in most areas, relative both to where it was before the downturn and to where it will need to be to meet the needs of a growing population in the longer term.

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At the same time, a number of factors are constraining demand. Household formation has been down, particularly among young adults. High unemployment and uncertain job prospects may have reduced the willingness of some households to commit to homeownership. Availability of mortgage credit is an important constraint, to which I will return later. Additionally, housing may no longer be viewed as the secure investment it once was thought to be, given uncertainty about future home prices and the economy more generally.

Not surprisingly, the large imbalance of supply and demand has been reflected in a drop in home values of historic proportions. Nationally, house prices have plunged about 30 percent in nominal terms from their peak and nearly 40 percent in real, or inflation-adjusted, terms. The imbalance of supply and demand has also been reflected in the decline in home construction that I mentioned earlier. Since 2009, the pace of single-family housing starts has averaged less than 500,000 units per year. During the 15 years before the financial crisis, the pace of single-family starts had never fallen below 1 million units per year.

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