WASHINGTON, D.C. -- Federal Reserve Chairman Alan Greenspan said Tuesday that the high-flying housing market is likely to lose a bit of altitude this year. That could slow consumer spending, one of the economy's few bright spots, he cautioned. A home-mortgage refinancing boom and rising home values have been two pillars supporting consumer spending, the main force keeping the economy going. Greenspan said an expected cooling on the refinancing and home appreciation fronts might turn homeowners into more cautious consumers. "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," Greenspan said in a speech delivered via a satellite video link to the Independent Community Bankers of America meeting in Orlando, Fla. A copy of his speech was distributed in Washington.
Private economists largely agreed with Greenspan's assessment, saying the super-brisk pace of refinancings and home-price appreciation seen in recent years probably will slow, which might restrain buying behavior. They also agreed with Greenspan's assessment that the housing market will remain healthy. "Low mortgage rates still represent a stimulus to the housing market and there is still a population of people out there who are tempted to buy or refinance the home they own because of low mortgage rates," said Bill Cheney, chief economist at John Hancock. "But in terms of growth rates -- in home refinancing, home sales and home values -- you can't look for a whole lot of increase," he added. Decades-low mortgage rates stoked home sales and home mortgage refinancing to record highs last year. Given the stock market turbulence and the sagging economy, owning a home has become an especially attractive investment for consumers. As consumers swap higher-interest-rate home loans for lower-interest-rate ones, the extra cash has helped to support consumer spending, one of the few sources of strength for the economy.
Rising home values also have made homeowners feel better about their balance sheets, another factor that has supported consumer spending. Greenspan noted that the brisk pace of home price increases is slowing and that refinancings are off their peak. Even as home appreciation slows, the housing market is in fine shape, Greenspan said, adding that he is not overly worried about a dramatic or disruptive drop in housing prices. "Clearly, after their very substantial run-up in recent years, home prices could recede," he said. "A sharp decline, the consequences of a bursting bubble, however, seems most unlikely." While David Seiders, chief economist at the National Association of Home Builders, agreed with Greenspan that the economy wasn't in danger of a housing bubble break, he disagreed with the possibility that home prices might fall in the near future. "To toss in the specter of the possibility of falling home prices -- at this stage of the game -- is not something you want to say to the home-buying public right now," Seiders said. "It could create an unnecessary chill." Greenspan did not discuss future interest rate policy in either his prepared remarks or in a question-and-answer period after his speech. The Fed meets March 18 and analysts expect policymakers will leave rates at a 41-year low of 1.25 percent. Recent economic reports suggest that businesses and consumers are turning more cautious amid worries about a war with Iraq, the turbulent stock market and rising energy prices.
Freddie Mac, the mortgage giant, reported last week that rates on 30-year mortgages dropped to a new low of 5.79 percent. Economists said home sales this year might be the second-strongest year ever. And, Phil Colling, economist at the Mortgage Bankers Association of America, said mortgage refinancing activity for 2003 might post the second-best year on record. "We've gotten spoiled," he said.///www.fxserver.com