Greenspan cautions on housing
Says prices may fall, cutting into spending
By Reuters, 3/5/2003
WASHINGTON -- The five-year-old US housing boom is likely to slow in 2003 and could dampen consumer spending, which has been fueled by the thriving housing market, Federal Reserve chairman Alan Greenspan said yesterday in comments that rattled housing markets.
''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 at a conference of the Independent Community Bankers of America in Orlando, Fla., via satellite.
Shares of homebuilder stocks tumbled as the Fed chairman, while ruling out a national housing bubble, raised the specter that the torrid pace of house price increases could slow and even decline in some regions.
''Clearly, after their very substantial run-up in recent years, home prices could recede,'' Greenspan said.
Greenspan's comments fed fears about the stamina of consumer spending and housing, both of which have somewhat offset weakness in the broader economy. Reports this week showed retail and auto sales have weakened.
''The thought process is that the consumer is sort of hunkering down, and the appetite for real estate is exhausted at this point,'' said Matthew Johnson, managing director of trading at Lehman Brothers. The Standard & Poor's Homebuilders index fell nearly 7 percent while the Dow Jones industrial average closed down 1.7 percent.
Analysts said Greenspan's raising of the possibility of home price declines could have a chilling effect on the housing market.
''All of a sudden -- after all he has said about the house price topic -- to say home prices could recede, I think struck people, at least those who follow this sort of thing, as stunning,'' said David Seiders, chief economist for the National Association of Homebuilders.
boston.com |
