By Yali N’Diaye

WASHINGTON (MN) – Housing markets remain an important downside risk
to the U.S. economic outlook, New York Federal Reserve Executive Vice
President Joseph Tracy said Friday, noting an ever growing foreclosure
pipeline.

“At best, then, we are only halfway through the resolution
process,” he said in remarks at the Dominican College, Orangeburg, New
York, referring to the foreclosure problems.

“There still remains a significant excess supply of housing that
will exert downward pressure on house prices and new construction,” he
added.

And most of this excess supply comes from foreclosures, he
continued, as new home construction remain at a “very low” level.

Looking at foreclosure data between the beginning of 2008 and the
third quarter of 2010, Tracy said completed foreclosures represent about
58% of started foreclosures.

As a result, “One important downside risk to the outlook is
associated with housing markets” this year, he said.

Still, the recent data reflecting improving economic conditions is
“welcomed news,” he said

In fact, the Commerce Department reported Friday that U.S. real GDP
growth accelerated to 3.2% in the fourth quarter of 2010 from +2.6% the
previous three months. Real final sales rose 7.1%, their best showing in
26 years.

And if a second Great Depression was avoided, that is only thanks
to the Federal Reserve’s aggressive monetary policy combined with
aggressive fiscal action, he said.

On the labor markets, conditions are also improving, with higher
working hours leading to additional labor demand, although some of it
will be by “restoring part-time workers to full-time status — an action
that does not reduce the unemployment rate.”

Besides, Tracy noted that “as conditions begin to improve in the
labor market, discouraged workers may decide to reenter the labor force
and to renew their search for a job.”

In turn, “This reentry pushes up the measured unemployment rate
until these reentrants find new employment.”

** Market News International Washington Bureau: 202-371-2121 **

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