Bernanke Pushes Idea to Rent Foreclosed Properties

In a speech to the National Association of Home Builders (NAHB) today, Federal Reserve chairman Ben Bernanke repeated his call for converting foreclosed properties in some parts of the US to rental units. In his words:

[M]ost REO [real-estate owned] properties are in neighborhoods with median house values and incomes that are roughly similar to the medians for the metropolitan area overall. Moreover, these properties are not unusually far, in terms of commuting times, from where jobs are located. We have compared computations of the expected annual cash flows from renting properties to the discounted prices that REO property holders typically receive when selling a home. The comparison suggests that some REO holders might come out ahead by renting, rather than by selling, some of their properties.

Bernanke sees an imbalance between available owner-occupied housing and tight rental markets. That has caused rents to rise and encouraged the construction of new apartment buildings. The NAHB recently said that demand for new apartment construction was rising as well, though the group sees that as a good thing. Bernanke probably does not agree completely with the NAHB view.

The homebuilders see credit availability as the major issue, and Bernanke had this to say about that:

The Federal Reserve, in its supervisory capacity, continues to encourage lenders to find ways to maintain prudent lending standards while serving creditworthy borrowers.

Pretty weak tea.

The text of Bernanke’s speech is available here.