Tight mortgage credit and "cautious" consumers are working to keep the housing market at depressed levels, according to Federal Reserve Board chairman Ben Bernanke.
Speaking at an economic forum in Jackson Hole, Wyo., the Fed chief said consumers have become more "more cautious" in their spending and economic outlook than the Fed expected.
"Household finances and attitudes bear heavily on the housing market, which has generally remained depressed," Bernanke said.
He noted that record-low mortgage rates and affordable prices would normally boost demand for housing.
"However, the overhang of foreclosed-upon and vacant housing and the difficulties of many households in obtaining mortgage credit are likely to continue to weigh on the pace of residential investment for some time," Bernanke said.
The central banker also noted the Federal Reserve could see $400 billion of its $1.1 trillion portfolio of agency mortgage-backed securities run off due to refinancings and other prepayments by the end of 2011.
While the Fed has decided to purchase long-term U.S. Treasuries—not MBS—to maintain the size of its securities portfolio, Bernanke said, "We do not rule out changing the reinvestment strategy if circumstances warrant.”
