28 February 2012 20:18 [Source: ICIS news]
WASHINGTON (ICIS)--The ?xml:namespace>
A post-recession upturn in pent-up housing demand would ordinarily help accelerate the broader national economic recovery, she noted.
“The current economic recovery has not followed this script, in part because the problems in the housing market are a cause of the downturn as well as a consequence of it,” she said.
Citing the estimated $7,000bn (€5,250bn) loss in
“Six years after aggregate house prices first began to decline, and more than two years after the start of the economic recovery, the housing market remains a significant drag on the
That sea anchor dragging on the recovery ship is not likely to be lifted soon, she indicated.
Duke said that as many as 12m US households are under water on their home loans, meaning that they owe more on the mortgage than their properties are worth.
This makes it difficult if not impossible for them to refinance their notes or sell the property, she said, which in combination with continuing high unemployment leads to delinquencies, foreclosures and further downward pressure on home values.
Unfortunately, Duke told the Senate Committee on Banking, Housing and Urban Affairs, “The elevated pace of foreclosures is likely to be sustained for quite a while and therefore will continue to put downward pressure on home prices”.
That puts more current homeowners under water, adding fresh delinquencies to the foreclosure process.
But Duke also put some blame for the housing crisis, depressed home prices and waves of foreclosures on banks’ tight lending criteria.
“Tight mortgage credit conditions have also prevented many households from purchasing homes,” she added.
“Although some retrenchment in lending standards was necessary and appropriate given the lax standards that prevailed before the crisis, current lending practices appear to be limiting or preventing lending even to creditworthy households,” she said.
She urged Congress to consider proposals to increase credit availability, provide further mortgage modifications and reduce the inventory of foreclosed homes.
However, she cautioned, trying to remedy the housing crisis with policymaking will require “difficult choices and tradeoffs, as initiatives to benefit the housing market will likely involve shifting some of the burden of adjustment from some parties to others”, she said, apparently referring to banks and taxpayers.
($1 = €0.75)
Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy
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