During an interview with Maria Bartiromo on FOX Business Network’s Mornings with Maria, former Federal Reserve Chairman Ben Bernanke was asked about the current state of the housing market.
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“There doesn’t seem to be anything remotely like we saw before the financial crisis, people have to look at their individual market, make good decisions, banks have to make good lending decisions, all those things,” notes Bernanke.
Bernanke believes that the housing industry overall is coming back, and that’s good. But he does point out that “we’re nowhere near the boom kind of construction levels, for example, we saw in 2005. I mean right now, in fact, housing construction is below the level needed to provide shelter for a growing population.”
He does acknowledge that prices are getting ahead of themselves in places such as New York, San Francisco and Miami.
“Look, I know prices in New York are really high, that’s actually a good thing in a sense that one way of thinking about house prices is to ask whether the price/rent multiple like a price/earnings multiple on a stock, is really high or not.”
Bernanke continued: “In the housing bubble, the prices of houses were way, way higher than the rents seemed to justify. In this case, you’ve got the high rents at least providing some kind of fundamental, which suggests that house prices in those particular areas, it’s certainly not a national thing, should be high.”
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Regarding the last housing bubble, Bernanke did admit that the Fed was responsible for missing some of it.
“We missed some things, but we did, of course, know that house prices are very high. We knew that they could, very likely would come down.”
Bernanke noted that in 2005, when he was in the White House working for President Bush, he made a presentation to him reporting that house prices could come down and what it would mean for the economy.
“So we understand that housing prices were high; we knew at some point they would probably correct,” states Bernanke.
“What we didn’t understand, and I don’t think many people at all understood, that the decline in house prices and the mortgage losses, the subprime mortgage problems, would in turn create a massive financial panic that we didn’t anticipate that was the damaging and dangerous part of the whole episode.”