While housing prices appear to have stabilized, there are still strong headwinds that are likely to limit the strength of the recovery. Fed Chairman Bernanke, for example, recently argued that without an additional policy response to support the housing market, the "deadweight loss" from the housing imbalance will continue to push housing prices lower. The Fed's plan would be to convert real estate owned (REO) properties to rentals, in an effort to boost the existing stocks of rental space and keep prices relatively affordable.In the end, although valuations and affordability continue to provide tailwinds for the housing market, a policy response to convert the current stock of existing inventories into rentals is likely necessary to overpower the strength of headwinds coming from excess supply and high delinquency rates. And once these inventories of distressed homes are cleared, the U.S. housing market looks poised for a potential rebound, adding momentum to U.S. activity.
The U.S. Housing Market's Tug-of-War
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