Despite a recent upturn in sales and prices, “the housing market is still very weak,” said Sheila Bair, who headed the Federal Deposit Insurance Corp. from 2006 to 2011. Bair, speaking at a Washington “economic summit” organized by The Atlantic magazine, warned homeowners that “we need more experience and data to know if it’s really turned around.”
Bair said lenders may be sitting on huge numbers of foreclosed upon houses that have been held back from the market. As housing prices start to perk up, that hidden inventory may come flooding into the market – and pushing prices back down, she said.
Moreover, millions of homeowners are “under water,” i.e., they still owe more on mortgages than they could get by selling their homes. As soon as they can sell at prices high enough to pay off old loans, they’ll put their properties on the market— and again drive down prices, she said.
And there could be another worry: prices for all sorts of assets may already be too high now because interest rates have been held too low for too long by the Federal Reserve, she said.
The Fed policy makers have had good intentions, but their low-interest-rate efforts have not revived the economy.
“We are not getting new lending and new jobs out of this,” Bair said. However, we do have “the risk of asset bubbles developing… well, they’ve already developed,” she said.