The Federal Reserve wants to keep interest rates low. For this reason, it will buy $600 billion as Treasury security by June end. Federal Reserve Chairman Ben Bernanke says homes will become more affordable once interest rates climb down and home prices are reduced. The real estate scenario is depressed and the economy will not revive until the real estate sector is revived. Bank foreclosures are high.
A problem facing the buyers is that of tightened credit. Also people are not very secure about their job. Unemployment is still very high at 9.5 per cent. All this is affecting the decision of the people to buy homes.
Bernanke said, “I would like to see further efforts to modify loans where appropriate, and where not appropriate, to speed the process of foreclosure and disposition to clear the market and get these homes out of the pipeline”. Once the home market is revived, the consumer confidence will be regained.
The plunge in home prices has been the most disturbing factor. Distress sales are high. People are also going in for short sales. A short sale happens when a homeowner sells his property at a lower price than what he owed to the bank. In fact, distressed sales make up for one-third of the home market. According to the National Association of Realtors, distress sales went down by 31%.
However, the situation is not so rosy on the job front. Unemployment is at a high of 9%. In fact, the poor job market has been hindering the revival of the real estate market. Also the indication has been that the revival of the market is very weak. Bernanke says that unemployment will climb down but the revival of the job market is very slow.
In the latter part of the year, unemployment will be between 8.6% and 8.9%. Till 2013, the unemployment rates will come down and in 2013 it is expected to hover around 7.5%. There are many reasons why the economy has not yet recovered. Most factors are temporary; some like the increasing energy prices. The disruption in supply chain tragedy is also another reason. The slow growth will remain for a few days now. The Federal chief said that there is no good reason why the revival of the economy is slow. Actually, the problem in labor market and housing is very strong. Nonetheless growth will pick up.