Greenspan Says Housing Boom May Fuel Spending
By Andrew Clark
WASHINGTON (Reuters) - Capital gains generated by a booming
housing market have likely spurred consumer spending and given a
strong boost to the U.S. economy, Federal Reserve Chairman Alan
Greenspan said Monday.
''We estimate ... that each home sale since 1995 has averaged
roughly $35,000 in capital gains, implying a total of $150
billion annually for the economy as a whole,'' he told the
Mortgage Bankers Association.
In addition to home sales, a wave of refinancings induced by low
mortgage rates has also helped put more spending money in
consumers' pockets.
''One might expect that a significant portion of the unencumbered
cash received by sellers and refinancers was used to purchase
goods and services,'' Greenspan said.
Departing from the prepared text of his speech, the Fed chief
said this effect could be felt for some time.
''Even though new home sales ... may actually flatten out,
there's just no question that the existing home sales trend will
continue higher -- that capital gains, the unrealized gains, will
continue,'' he said. ''And as the sales are turned over, you
invariably get significant changes in realized capital gains
which almost surely will have effects on consumer purchases and
on the economy.''
He said even unrealized gains -- money that homeowners' assume
they will get in the future when they sell -- could influence
consumer spending.
''People who own a home likely have a sense of the appreciation
in its value over the years. These unrealized gains may be
factored into their long-term planning, and thus may influence
spending on goods and services both well before and after the
home is sold.''
Greenspan said inflation remained low -- despite a tight labor
market and the U.S. economy's ''spectacular performance'' in
recent years -- helping to keep mortgage rates down.
''That, together with the robust job market and healthy gains in
income and lofty wealth positions, have propelled the demand for
housing to extraordinary levels and with it the demand for new
mortgages,'' he said.
''Two-thirds of American households now own their homes, up
sharply from just a few years ago.''
Greenspan noted mortgage refinancings had fallen off this year as
long-term mortgage rates had crept up, and suggested the market
for refinancings might be nearly exhausted.
''Given last year's prolonged period of low mortgage rates, one
wonders whether many of those who have not yet refinanced will do
so, even if mortgage rates remain at their current levels,'' he
said.
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