Housing boom will end, Greenspan warns

Sunday, August 28th, 2005


NEW YORK — The U.S. housing boom is sure to end eventually, slowing spending and possibly leading to a drop in house prices, U.S. Federal Reserve chairman Alan Greenspan said yesterday.

“The housing boom will inevitably simmer down,” he said in a speech at the close of a two-day symposium in Jackson Hole, Wyo.

“As part of that process, house turnover will decline from currently historic levels, while home price increases will slow and prices could even decrease.”

Greenspan’s comments suggest economic growth would slow as the housing surge subsides, reducing pressure on central bankers to raise interest rates.

A day earlier, Greenspan urged investors not to forget about the possibility that asset prices may fall.

The eventual end of the boom will cause U.S. consumers to take out fewer home-equity loans, giving them less money to spend.

That in turn may increase the savings rate and ease the import-driven current-account deficit, he said, adding that the shift needn’t be “wrenching” if the economy remains flexible.

“Home-equity extraction will ease and with it some of the strength in personal consumption expenditures,” Greenspan said.

Consumer spending accounts for about 70 per cent of the U.S. economy. Consumers have tapped about $1.62 trillion US of their homes’ value through equity loans since 2001 and spent as much as half of that, economists say.

© The Vancouver Province 2005

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