Monetary policymakers should recognize that the housing bust will have a lasting effect on the U.S. economy and should adjust their expectations to “relatively slow GDP growth,” according to Federal Reserve Bank president James Bullard.
“The housing bubble did lasting damage to the U.S. economy,” said St. Louis FRB president Bullard.
The bust saddled many households with much more debt than they intended to take on and it may take seven to 17 years for many to deleverage depending on mortgage rates and house appreciation, he said.
“It is neither feasible nor desirable to attempt to re-inflate the housing bubble,” he stressed.
Bullard spoke at a housing seminar in St. Louis sponsored by the Bipartisan Policy Center’s Housing Commission and the Jack Kemp Foundation. He pointed out that most sectors of the economy have recovered from the financial crisis, but not housing and real estate.
“In short, this view suggests that most of the business-cycle adjustment has already taken place, and that what remains is a slow rate of trend growth due to a longer-term adjustment process still taking place in real estate,” he concluded.
