Housing market collapse still being felt in economic recovery

As the dust settles from the housing bubble burst, one industry expert says there may be some lasting damage inflicted on the overall economy.

As the dust settles from the housing bubble burst, one industry expert says there may be some lasting damage inflicted on the overall economy.

Federal Reserve Bank of St. Louis president and CEO James Bullard recently made this claim in a speech at the Official Monetary and Financial Institutions Forum in London.

"The housing bubble and the ensuing financial crisis probably did some lasting damage to the economy, suggesting that the output gap in the U.S. is not as large as commonly believed and that the growth rate of potential output is modest," Bullard said.

Activity in the housing has remained sluggish during recent years compared to levels experienced at the market's peak. In addition, although the unemployment rate dropped to 8.2 percent in June from 9.1 percent a year earlier, economic growth has also been stagnant, Bullard said.

Meanwhile, uncertainty regarding the European debt crisis is also starting to spread to the economic homefront. Specifically, investors are abandoning foreign markets to find safety and soundness in more secure options, including Treasury bonds. Since these investments are tied closely to the mortgage industry, home loan rates have hovered near record lows as a result of the increased activity.



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