I hope to have more on Bernanke’s press conference when the transcript is posted, but this partial comment in response to a question goes a long way toward understanding the moribund housing market:
Unfortunately, there are problems, including the fact that credit standards for mortgages have tightened considerably so that roughly about the bottom third of people who might have qualified for a prime mortgage in terms of FICO scores a few years ago cannot qualify today. That’s an important problem.
We all well know the subprime market is dead. I had not realized that fully 1/3 of potential prime borrowers are now no longer considered qualified by virtue of higher FICO scores being required by banks. Simply put, we’ve apparently got big issues on both sides of the equation (way too much supply, and a demand problem that is being exacerbated by banks’ newfound religion on credit standards). Exactly how is the tremendous slack supposed to be picked up?
I’ll also opine for a moment on the Fed’s statement, and leave the follow-up for when a transcript of the Q&A is posted. Two words (highlighted) in this line caught my attention, and also that of today’s second questioner, whomever that was:
The slower pace of the recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan.
The statement begs the question as to how much the Fed believes is temporary and how much it believes will linger for a while or is perhaps permanent. As mentioned, a questioner pressed on this a bit, and I’ll review the transcript when available. But this, to me, is worrisome (along with the fact that, at least for now, the Fed is washing its hands of further proactivity).