Fed board member: More pain ahead for housing

It’s not going to be a seller’s housing market for a while longer, according to a longtime Virginia banker and Federal Reserve board member who spoke at the University of Richmond on Monday.

Elizabeth Duke, a member of the board of governors of the Federal Reserve System, told a packed Camp Concert Hall that between 4 million and 5 million properties in the United States are either in foreclosure or are soon going to be in foreclosure.

Duke said the “huge percentage” of distressed properties are weighing on home prices. Things won’t improve very much until those foreclosures are cycled through the market, she said.

One program Duke highlighted was a recent proposal by the Fed to convert foreclosures into rental properties by selling them to investors in bulk, which would theoretically speed up the process of getting foreclosures off the market and boost new and existing home sales.

Duke took her position on the board in August 2008, the height of the financial crisis, a time that she described as frightening.

In her speech, she defended the actions of the Fed during and since the recession, saying they prevented a much worse situation from developing.

“Every action the Fed took was directed at improving the economy rather than the well-being of the banks,” Duke said.

Duke has strong ties to Virginia. She was chief operating office of Suffolk-based TowneBank and the chief executive of Bank of Tidewater, a former Virginia Beach-based bank.

It’s not going to be a seller’s housing market for a while longer, according to a longtime Virginia banker and Federal Reserve board member who spoke at the University of Richmond on Monday.

Elizabeth Duke, a member of the board of governors of the Federal Reserve System, told a packed Camp Concert Hall that between 4 million and 5 million properties in the United States are either in foreclosure or are soon going to be in foreclosure.

Duke said the “huge percentage” of distressed properties are weighing on home prices. Things won’t improve very much until those foreclosures are cycled through the market, she said.

One program Duke highlighted was a recent proposal by the Fed to convert foreclosures into rental properties by selling them to investors in bulk, which would theoretically speed up the process of getting foreclosures off the market and boost new and existing home sales.

Duke took her position on the board in August 2008, the height of the financial crisis, a time that she described as frightening.

In her speech, she defended the actions of the Fed during and since the recession, saying they prevented a much worse situation from developing.

“Every action the Fed took was directed at improving the economy rather than the well-being of the banks,” Duke said.

Duke has strong ties to Virginia. She was chief operating office of Suffolk-based TowneBank and the chief executive of Bank of Tidewater, a former Virginia Beach-based bank.

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Carter Snipes
Carter Snipes
10 years ago

Congress needs to act on the recent Fed White Paper on Housing which included the REO-to-Rental program mentioned here, as well as a debt write down program. The market has written down the value of homes. Why not work out the loans with current borrowers and keep them in the homes? Most of the time Lenders lose far less on a write down, than by foreclosure.

David Owen
David Owen
10 years ago

She is correct that nationally foreclosures are an issue, but the housing recovery is being driven by local markets. The State of Virginia and the Richmond metro market are not experiencing pressure on prices from foreclosures like the rest of the country. Our local foreclosure rate is running within 0.5% of historic averages. If the demand for new homes remains at levels from the previous 6 months we will have a shortage of new home inventory in some areas of central Virginia by August 2012.

Jody Clower
Jody Clower
10 years ago

Both Carter and David are correct. There are proposals under consideration now to lessen the impact of the pending foreclosures such as the REO to Rental program. They just need to act. If lenders will assess the larger picture and negotiate with their homeowners to keep them in their homes- the housing recovery would go much quicker. Fortunately, the Richmond metro is faring much better than the rest of the nation. There is growing demand for homes here and investors from other areas are snatching up homes at prices they could not touch in their hometowns. So the secret is… Read more »

Koolaid
Koolaid
10 years ago

A shortage of new home inventory by August of this year? While I certainly agree that the levels of foreclosures in the Central Virginia region are much lower than the national average and that our area is generally rebounding at a better pace, any data showing a shortage of housing inventory seven months from now needs to be examined more thoroughly to highlight the metrics which are conveniently omitted while also reviewing the sources of the information. We have enough inventory to last a few years if the economics allowed the sellers to gain some momentum back. Sure, some investors… Read more »

charles
charles
10 years ago

glad to see that years into this, some people have finally figured out shadow overhang. Not surprised to see some people have not. I’m in the business. There are plenty of foreclosures in Richmond, there are even more coming down the pike, and they are pushing prices down. This is simple reality. The idea that people will be rushing to buy new houses any time soon is just laughable. And vis a vis the likelihood of a sellers market any time soon, not happening. Interest rates are a negative buffer. If the economy gets better, rates will go up. If… Read more »

Tim Edwards
Tim Edwards
10 years ago

Koolaid is correct. The situation goes well beyond the foreclosed homes. Those homes are already trustee or lender owned. The trustee has made their money, and the lenders have collected insurance from Fannie Mae or such, and will sell the property, to someone who will purchase it at ‘discount to market’. The surrounding home values will be reduced by the foreclosed sales and then the cycle continues as it has since August 16, 2007 when all this mess began. It is the neighboring homeowners who now have suffered decline in thier house value, that is the most haunting problem in… Read more »

michael
michael
10 years ago

Housing is tied to unemployment. Unemployment in metro-Richmond is closer to 20% when you include everyone who has lost a job since 2007. Most Realtors in metro-Richmond are still living in 2003 when the market was hot. Some of those same Realtors have made inaccurate statements here to benefit themselves. Funny thing is if the Fed pulls this one off, the local Realtors wont make a dime. Also, reflect and think who will be these “investors” buying in bulk?

Keith Jones
Keith Jones
10 years ago

Wow, with all the problems with the federal government, do we really want them “fronting” money for part of homeowners mortgages, like Tim Edwards is suggesting, and spend more money for individuals who should not have gotten the mortgage in the first place? While I feel for some people who have suffered during the financial downturn, too many others got mortgages that they knew they could not afford and simply “walk away” from their responsibility. This is what has gotten us into the spot we are in now. But government subsidised mortgages is certainly not the answer.

Richard Snow
Richard Snow
10 years ago

Turn large blocks of foreclosures into rentals, dump them on the market causing a glut of vacant rentals, which pushes down rental prices to the point where many would be buyers elect to rent rather than buy, because bottom line is it’s cheaper. Now demand for ‘homes for sale’ decreases, which of course negatively impacts prices…anyone see where I’m going here? It’s a vicious circle, a ‘catch-22’. There is no simple fix.

charles
charles
10 years ago

Richard Snow – interesting and good point