Federal Reserve says Housing Slump Could Mean Bigger Trouble
ST. LOUIS, MO–(KMOX)–With the housing market backsliding to its recession low mark, the Federal Reserve Bank of St. Louis warns it could mean trouble is looming for the whole economy.
“My take is that housing, and the wealth effects of the housing correction, and foreclosure crisis that’s ongoing has the potential, as it did in 2007, to tip the broader economy,” said Federal Reserve Assistant Vice-President and Economist Bill Emmons.
Emmons spoke with KMOX during a Fed seminar on housing trends. He emphasized that a broader economic downturn would require several bad things happening that haven’t happened yet — but could.
“I don’t think you can make the argument that we’ve seen it quite yet,” Emmons said, “There doesn’t seem to be the abrupt pullback in consumer spending. But if you started to see sharp drops in confidence, retail sales numbers looking bad, and then if it spills over into firms stop hiring, and we’ll get that number tomorrow from the labor department.”
“Those are the sort of tell-tale signs that you might be seeing a turning point,” Emmons said. When asked where the bottom is in housing, he gave a cautious prediction.
“No one knows, and anyone who says they know is lying, but it looks like it’s not going to be this year.”
If the housing market continues to fall, and Congress has no money to stop it, Emmons says that might make the process run its course faster.
“It might happen more quickly this time than it did last time, because I don’t think there’s the political will to intervene in a very large way or even the ability,” Emmons said, “I’m not sure that Congress could put a package together.”
Emmons concurs with other economists who believe the housing market must absorb and digest the glut of foreclosed properties before prices can stabilize .
Looking for his best-case scenario, Emmons was asked what would have to happen right now for the housing market to bounce back.
“There’s a possibility that there is a lot of pent-up demand out there for houses,” Emmons said, “pent-up demand for other sorts of things people want to buy.. Banks profits are better. Maybe we’ll see loosening in lending standards. Maybe we’ll see some stronger growths in income. Maybe oil prices will fall.”