by Calculated Risk on 2/10/2012 12:30:00 PM

Here is the transcript of Fed Chairman Ben Bernanke's speech at the National Association of Homebuilders International Builders' Show, Orlando, Florida: "Housing Markets in Transition". The speech is being streamed live at www.nahb.org/Bernanke

Excerpt:

One way to understand conditions in the housing market is to focus on the balance of supply and demand. For the past few years, the actual and potential supply of single-family homes has greatly exceeded the effective demand. The elevated number of homes that are currently vacant instead of owner occupied reflects the imbalance. According to the most recent estimate, about 1-3/4 million homes are currently unoccupied and for sale. While this figure has declined slightly during the past few years, it is nonetheless up dramatically from the first half of the 2000s, when readings of about 1-1/4 million vacant homes were the norm. Of course, housing conditions vary by region, and vacancy rates in some locations are substantially higher than the national average....

Moreover, a very large number of additional homes are poised to come on the owner-occupied market. In each of the past few years, roughly 2 million homes have entered the foreclosure process, and many of these homes have been put up for sale, crowding out much of the need for new building. Looking ahead, the relatively high rate of foreclosures is likely to continue for a while, putting additional homes on the market and dislocating families and disrupting communities in the process.

At the same time, a number of factors are constraining demand. Household formation has been down, particularly among young adults. High unemployment and uncertain job prospects may have reduced the willingness of some households to commit to homeownership. Availability of mortgage credit is an important constraint, to which I will return later. Additionally, housing may no longer be viewed as the secure investment it once was thought to be, given uncertainty about future home prices and the economy more generally.

Not surprisingly, the large imbalance of supply and demand has been reflected in a drop in home values of historic proportions. ...

To recap, the housing sector continues to suffer from serious imbalances--a marked excess supply for owner-occupied housing accompanied by a stronger rental markets. The narrative of the housing market over the next several years will revolve around the resolution of those imbalances.