The hesitant housing recovery has surprised and concerned Federal Reserve Chair Janet Yellen and her colleagues at the central bank. It’s not clear how much they can do about it.

While the industry is rebounding from a weather-ravaged first quarter, the pickup will probably fall short of previous projections, according to economists at Goldman Sachs Group Inc. of New York and Macroeconomic Advisers LLC in St. Louis. As a result, they trimmed their forecasts for economic growth in the second half of 2014 to about 3.25 percent from 3.5 percent.

“Housing is a growing worry,” said Macroeconomic Advisers’ senior economist Ben Herzon.

Yellen and many of her colleagues agree. The Fed chair flagged the industry as a risk to the outlook in testimony to Congress on May 7, while Federal Reserve Bank of New York President William C. Dudley said last week he had been surprised by how weak it had been recently. He added that he still expects gross domestic product to “get back on a roughly 3 percent growth trajectory” after stalling in the first quarter. 

The trouble from the Fed’s perspective is that many of the forces holding housing back are outside of its control. While the Fed can influence mortgage rates through its conduct of monetary policy, it can’t do much, if anything, to counteract the other causes of faltering demand: Lagging household formation, stingy lenders and wary borrowers.

“Mortgage financing is extremely tight,” said Ellen Zentner, senior economist at Morgan Stanley in New York. “And that’s not something the Fed can manipulate.”

The Fed’s ability to affect the supply of housing is even more limited. Builders are complaining about rising costs and an increasing difficulty in hiring skilled workers. They’re also concentrating on developing bigger, higher-priced projects rather than on the starter homes more buyers can afford. And they too are plagued by tight credit.

Dennis McConnell’s company is one of them. Before the housing crisis, Healthy House of Georgia built about 10 homes a year in historic districts in Atlanta. He said he’s put up two in the last six years combined, partly because of difficulties in finding financing.

McConnell said he’s resorting to private lenders to make his deals happen. Private sources can range from friends and family and self-financed projects to “hard-money” lenders ― “someone who, when you sign the dotted line, you count your fingers and toes and make sure you have them all back.”

“For those poor saps like myself who build a couple houses a year or have a specialty market like mine, funding just became impossible,” he said. (Bloomberg)