The Broader Market

Scott Pelley of 60 Minutes investigates the issue of foreclosed and vacant homes.

In good times, the housing industry comprises about 5-6 percent of our nation’s GDP and is historically what leads the economy out of recession. The Federal Reserve lowers interest rates, mortgages become cheaper, and housing starts increase.

Yet, we have long since emerged from recession and the housing market remains distressed. Home prices are down by more than a third since their peak four years ago and they have yet to stabilize.

The main reason we have not had a housing market recovery is that the bursting of the housing bubble has left us with a large overhang of vacant, foreclosed homes in the for-sale market. This serves to drag home prices down and blight neighborhoods throughout the country.

Just to put the problem in perspective – there are approximately 400,000 foreclosed homes today and 2.8 million more expected to become foreclosures. 

Thus, to ensure a strong economy going forward, policymakers must respond to this foreclosure problem and my colleagues and I have written on several occasions (here and here) about one way to tackle this problem.