Federal Reserve official predicts tough years for housing

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Federal Reserve official predicts tough years for housing

November 16, 2011 [Canton Repository]

An official with the Federal Reserve Bank of Cleveland told Stark County builders on Wednesday to expect the new housing slump to last another five years.

Paul E. Kaboth, vice president for community affairs for the branch of the central bank, said unique circumstances in the Midwest mean it probably will take longer for home building to return to pre-recession levels in Ohio than in other parts of the country.

Those issues, he said, are slow population growth and an abundance of smaller, older and vacant homes. The result has been an oversupply of homes.

Kaboth was speaking to a quarterly luncheon meeting of the Building Industry Association, attended by about 60 builders, real estate agents and bankers at the Fairways Golf Course .

“Housing for the next year, it’s not going to be good,” Kaboth said, adding that housing will not return to its former strength in five years or more.

During questions and answers later, two builders told Kaboth that their own industry experts with the National Association of Home Builders have offered somewhat rosier forecasts.

Kaboth said the issues unique to the Midwest mean that Ohio and Stark County may not be able to match national housing trends.

“There’s a lot of supply and not a lot of people,” he said. “Unless a lot of people move in, I don’t know who’s going to live in those homes.”

Urban housing stock in Canton, Cleveland, Youngstown and other Ohio cities is old, cheap and too often vacant, Kaboth said, and is a drag on home prices and on local governments.

“The issues and the problems here in Ohio are different, and we think the solutions need to be different,” he said.

One answer may be to reduce inventory through the use of county land banks, as has been implemented in Cuyahoga County, he said.

“Even if we do that,” Kaboth said, “it’s going to take a lot of time.”

He said one bright spot for northeast Ohio may be drilling for oil and natural gas in underground shale, which has the potential to provide jobs and attract newcomers.

“That can’t be anything but positive,” said Kaboth, a Stark County native who lives in Jackson Township.

The Q-and-A session was marked by a lengthy discussion in which multiple builders expressed frustration with banks for refusing to lend money or to refinance business loans, even though banks have large cash deposits.

Builders said banks routinely blame regulators in the Federal Reserve System for setting onerous loan reserve requirements that hamper lending.

Not entirely, Kaboth said, noting that he was a Federal Reserve regulator until July and now has a new job with the bank and, thus, was expressing a personal opinion.

He said banks reacted to the economic recession and to continuing difficulties in home lending by deliberately reducing their loan portfolios in residential real estate.

He also noted that bank regulators, too, have changed their risk tolerance.