Greenspan Sees Mortgage Growth Slowdown
WASHINGTON (Reuters) - The five-year-old U.S. housing boom is likely to slow in 2003 and could dampen the consumer spending that had been fueled by the thriving housing market, Federal Reserve Chairman Alan Greenspan said on Tuesday.
"With home price increases now subsiding, and mortgage interest rates no longer declining at last year's impressive pace, some slowdown in the rate of mortgage debt expansion is to be expected," he said in a speech via satellite to a conference of the Independent Community Bankers of America in Orlando, Fla.
The pace of home owners extracting cash from a mortgage refinancing is also likely to slow, he said.
"The frenetic pace of home equity extraction last year is likely to appreciably simmer down in 2003, possibly notably lessening support to household purchases of goods and services," the Fed chairman said.
Greenspan said it is unreasonable to expect rises in home prices -- which appreciated 7 percent in 2002, and by one-third in the past four years -- to sustain such a growth pace.
On Monday, the Office of Federal Housing Enterprise Oversight said U.S. home prices rose nearly 7 percent in 2002 but the pace slowed sharply in the second half of the year despite record low mortgage rates that sent home sales to all-time highs.
The housing market kicked off 2003 with a mixed performance. In January, new home sales fell 15.1 percent, but existing home sales rose 3 percent to the highest monthly rate on record, according to government and industry data out last week. Median prices of new and existing homes slid in January versus December, but were higher than a year earlier.
The central bank chief said he does not expect any housing bubble to burst on a national level, although there may be price declines in regional markets.
"Any bubbles that might emerge would tend to be local, not national, in scope," he said.
At the same time, demand for homes remains resilient, Greenspan said.
"There is little indication of a supply overhang in newly constructed homes," he said.
Housing activity is more likely to be dampened by rising interest rates than by declines in home values, Greenspan said. Mortgage interest rates, now at the lowest levels since the early 1960s, have played a major role in the five-year boom in home building and mortgage finance, he said.
However, if interest rates rise, it would probably be because of an improvement in business activity and a resurgent economy, which would offset the dampening effect of higher mortgage rates, the Fed chair said.
"The net effect on housing activity might be relatively limited," he said.
Greenspan said the ease with which home owners can tap into the value of their homes for finances helps buffer against economic shocks.
"There can be little doubt that the availability of a ready source of home equity has reduced the costs and uncertainties associated with income volatility, retirement, unexpected medical bills and a host of other life events that can unexpectedly draw down savings," he said. |
