Tight Credit Conditions Impeding Housing and Economic Recovery, Fed Chairman Tells Home Builders

Restraints on credit for home buyers and home builders alike continue to impede the housing and economic recovery, Federal Reserve Chairman Ben Bernanke said last Friday at the National Association of Home Builders (NAHB) Board of Directors meeting in Orlando.

“Banks remain reluctant to make loans, both to mortgage borrowers and homebuilders,” said Bernanke, who noted that current credit conditions are too tight for the financial system, for the construction industry and the economy.

The Fed chairman said that his message to regulators is for them to take a balanced approach and to approve loans for those who meet sound underwriting standards. “Do not turn away creditworthy borrowers, and that includes home builders,” he said.

“Chairman Bernanke understands that today’s tight credit conditions are preventing qualified buyers from obtaining home loans and builders from getting financing for the construction of viable new home building projects — and that this is harming the housing market as well as the overall economy,” said Barry Rutenberg, the newly elected chairman of the National Association of Home Builders (NAHB) and a homebuilder from Gainesville, Fla.

Noting that many local markets have an overhang of empty and foreclosed homes, the current harsh lending environment, and that the weak housing market is impairing the financial health of homeowners, Bernanke said that the “state of the housing market has been a key impediment to a faster recovery.”

“For these reasons, and because the troubled housing market depresses construction activity and employment, we need to continue to develop and implement policies that will help the housing sector get back on its feet,” the Fed chairman said. “No single solution will be sufficient. But sustained efforts to address the many interlocking factors holding back the housing market will pay dividends in the long run.” 

He also added that the Fannie Mae and Freddie Mac limits on investor loans are counterproductive in the current economic climate and that policy should be to encourage more loans to help ease the inventory of distressed properties.

Bernanke’s remarks on the need to take more aggressive action to support a housing recovery confirms what the nation’s homebuilders have been saying for some time and reiterates similar themes in a Jan. 4 white paper provided to Congress, in which the Federal Reserve noted that “restoring the health of the housing market is a necessary part of a broader strategy for economic recovery.”

With the proper policies in place, housing can serve as an engine of job growth, said Rutenberg, who noted that building 100 homes creates more than 300 full-time jobs and generates $8.9 million in federal, state and local revenues to fund local schools and strengthen communities across the nation.

“In this key election year, the voters are calling on the Administration and Congress to take actions to restore the health of the housing industry in order to create jobs, increase household wealth and keep the economy on an upward trajectory,” he added. 

Watch a replay of Bernanke’s address.