More bad MBA numbers this morning so Bernanke sends Fred Poole out to say that "a housing price bubble does not exist on a national average basis, but there may be pockets of the country where prices have risen beyond levels that can be justified by economic fundamentals,".
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*DJ Fed's Poole: Housing Prices To 'Stabilize' At High Level
Inc.
*DJ Fed's Poole: Expects To See 'Low And Stable' Inflation
*DJ Poole: Expects 2005 Energy Price Surge Impact To Wane
*DJ Fed's Poole: Conventional Mtge Rates Have Remained Low
*DJ Fed's Poole: Job Gains Will Help Hold Up Housing Mkt
*DJ Poole: Slower Housing Gains Small Impact On Consumers
*DJ Fed's Poole: Forecasting Housing Outlook Is Difficult
*DJ Fed's Poole: No Sign Of National Housing Market Bubble
DJ Fed's Poole: Housing Prices To 'Stabilize' At High Level
By Michael S. Derby
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Federal Reserve Bank of St. Louis President William Poole said Wednesday the housing market might see slower price gains this year, but is in no danger of a sharp pull back in prices.
"My hunch...is that housing activity will stabilize and remain at a high level this year," Poole said, adding that "some slowing in the growth of average home prices nationally seems a reasonable expectation at this juncture." He spoke in comments prepared for delivery before the Regional Commerce and Growth Association in St. Louis.
Poole said that his view rests on the expectation that the Fed "will keep underlying inflation low and stable, and that the growth of real household income will recover nicely due to the waning influence of last year's spike in energy prices."
The central banker added, "continued healthy job growth will also help keep housing conditions at a high level," and added "the conventional mortgage interest rate rose modestly last year, but it still remains quite low compared to the 1990s, when it averaged 8%."
Poole's speech did not directly address the near-term monetary policy outlook, and refrained from other forward looking remarks on the economic outlook. Poole is not currently a voting member of the interest rate setting Federal Open Market Committee, which next meets March 27-28 in a gathering that's very likely to result in a hike in the fed funds target rate to 4.75%, from 4.50%.
The central banker's confidence in the state of the housing market has been echoed in the remarks of other Fed officials. Many have noted that while conditions in some parts of the nation have created excessive price gains, the overall state of affairs has failed to tip over into bubble like conditions. Many economists also believe that with the Fed's tightening campaign and the importance housing has played in driving growth, some cooling in that sector would be welcomed by policy-makers.
Slower housing price gains may mean reduced consumer spending power. "The marginal contribution to the pace of consumer spending stemming from the wealth effect...is not likely to be a significant concern," Poole said.
That's because other economic developments, in particular rising income and job growth, "typically exert a much greater influence on the consumer's pocketbook and spending habits than does the state of the housing industry," the bank president explained.
But even as Poole offered his prediction for the performance of housing, he cautioned that this very subject has proved a challenge for economists.
"Forecasting the near-term prospects for the U.S. housing sector has always been difficult because the housing industry fluctuates a lot, and the fluctuations depend on changes in income, interest rates and other conditions that are themselves difficult to forecast," Poole said, pointing to economists' frequent incorrect estimation of the housing sector's performance.
The bank president played down concerns that the housing market had already overheated, and reiterated a common view that it's important to understand the regional nature of housing markets.
"The conventional view, which I subscribe to, is that a housing price bubble does not exist on a national average basis, but there may be pockets of the country where prices have risen beyond levels that can be justified by economic fundamentals," Poole said.
But even then, "outsize price increases are not themselves a clear guide to overpricing," Poole said. "In practice, there is no perfect definition of a price bubble, so identifying a bubble in real-time is inherently a judgmental exercise," he said.
Things could take some time to understand fully, Poole said. "If you have an academic interest in house prices, I recommend that you wait of few years. If you have a direct financial interest, I can't help much - you're on your own," he said.
-By Michael S. Derby, Dow Jones Newswires; 201-938-4192; michael.derby@dowjones.com
(END) Dow Jones Newswires
03-08-06 0913ET |
