- The Washington Times - Wednesday, March 5, 2003

Federal Reserve Chairman Alan Greenspan said yesterday 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 house values have been the main pillars supporting consumer spending, the main force keeping the economy going. Mr. Greenspan said an expected cooling on the refinancing and home-appreciation fronts could 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," Mr. Greenspan said in a speech delivered via 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 Mr. Greenspan's assessment, saying that the super-brisk pace of refinancings and home-price appreciation seen in recent years probably will slow, which could restrain buying behavior.
However, they also echoed his sentiments that the housing market, nonetheless, is in good shape.
"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 they swap higher-interest rate home loans for lower-interest rate ones, the extra cash has helped to support consumer spending.
Rising home values also have made homeowners feel better about their balance sheets during these muddled economic times, another factor that has supported consumer spending.
Mr. 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, Mr. Greenspan said, adding that he is not overly worried about a sharp or disruptive drop in housing prices.
"Clearly, after their very substantial run-up in recent years, home prices could recede," Mr. Greenspan 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 Mr. Greenspan that the economy wasn't in danger of the housing bubble bursting, he strongly disagreed on a possible drop in home prices 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," Mr. Seiders said.
"It could create an unnecessary chill."

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