A Fed Official Reports The Housing Market Is Severely Out Of Balance

The severely out of balance housing market is greatly hampering the nation’s economic recovery, and solving the supply-and-demand issues in the housing market needs to be an immediate priority, Elizabeth Duke, member of the Board of Governors of the Federal Reserve, said late last week to the Federal Reserve Board Policy Forum during a speech, The Housing Market Going Forward: Lessons Learned from the Recent Crisis.

Duke said that addressing the swelling inventories of REOs is critical for helping to rebalance the housing market. An inventory of at least 1 million REOs this year as well as 2012 and 2013 is expected to pass through the market, and “REO properties are weighing heavily on the market for owner-occupied house” and bringing overall home prices down, Duke said.

Duke said that converting a portion of residential REOs to rental units may be one reasonable option for lenders to handle the big wave of foreclosures.

“Such conversions might also be in the best interests of lienholders and guarantors if recoveries from renting out properties exceed those from outright sales,” she said. “Over time, as financing conditions ease and the number of REO properties to be sold declines, the share of properties sold to owner-occupants and sold to investors for rental will adjust commensurately.”