Fed: South Florida Housing, Mortgage Woes to Limit Growth
The U.S. economy will slow over the rest of this year because of a significant deterioration in the bad credit mortgage market, a slowdown in residential construction and tighter credit standards for consumers and business.
That’s the national take from Federal Reserve Chairman Ben S. Bernanke, and it’s not a pretty picture. Fed economists have lowered their 2007 growth forecast by a quarter of a percent, to a maximum of 2.75 percent.
Bernanke said improvements in inflation might be only temporary, signaling he doesn’t favor lowering interest rates - which strongly influence Florida mortgage rates - anytime soon.
New Labor Department data Wednesday showed consumer core inflation - which excludes volatile food and energy prices - grew at an annual rate of 2.3 percent for the first six months of 2007; total inflation, 2.7 percent.
In Miami-Dade County and Broward County, consumer prices rose by an average of 4.4 percent over last year.
Shelter cost - rent, Florida mortgage payments and property insurance - seeing its biggest annual increase in 25 years.
Those prices soared 8.2 percent.
Bernanke’s semi-annual report to a House committee Wednesday underscored the housing market’s continued drag on the economy.
Conditions in the bad credit Florida mortgage sector have deteriorated significantly, reflecting mounting delinquency rates on adjustable-rate loans, which are at record levels.
What’s worse, locally, problems in the subprime market - which involves Florida home loans to borrowers with weak credit histories - are spreading.
Businesses with shakier balance sheets are finding it harder to get loans, and banks are less willing to lend for buyouts if the deal involves a lot of debt.
Two of Bear Stearns’ hedge funds for investors, which held investments over $20 billion, have effectively gone broke because of exposure to subprime loans that had been bundled and sold into the secondary market.
That’s raising fears that such problems may spread further into financial markets. Still, Bernanke said, bond and business loan markets remain brisk.
The Fed chairman devoted much of his testimony to what the Fed is doing to strengthen supervision of mortgage and home equity loan lending.
He expects to implement new rules to combat unfair, deceptive advertising in mortgage and Florida home equity loan lending later this year.
Economic growth next year is expected to remain somewhere between 2.5 and 2.75 percent, Bernanke said, while unemployment is expected to remain low at 4.75 percent, though that’s slightly higher than this year.
“It struck me as a little cautious,” said Mark Vitner, economist for Wachovia, a large national bank from Charlotte, N.C., who thinks a more robust rebound is in store as inflation threats ebb.
“I think the economy is going to be a little stronger than Bernanke indicated, but it’s his job to be cautious,” he said.
The Fed’s benchmark federal-funds rate has been at 5.25 percent since June 2006.
SOURCE: Miami Herald
