Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

Previous Posts

Friday, October 06, 2006

No Soft Landing for Housing

By Yaser Anwar, CSC of Equity Investment Ideas

Federal Reserve Chairman Ben Bernanke admits that the housing market is going through a "substantial correction" right now. That’s far from the tune the Fed was hinting earlier in the year when it said a soft landing was probable.

"It seems pretty clear now that the U.S. housing market is cooling," Bernanke said in May. "Our assessment at this point . . . is that this looks to be a very orderly and moderate kind of cooling."

Yesterday, though, Bernanke relented, calling the decline in housing "one of the major drags causing the economy to slow now" and that the slowdown could shave as much as 1 percent off the nation’s growth in the second half of 2006 and "probably" impact growth in 2007.

"I think I would estimate that slowing housing construction will probably take about a percentage point off growth in the second half of the year and probably something going into next year as well," Bernanke said.

Bernanke made his remarks after a speech to the Economic Club of Washington yesterday afternoon. The speech focused on baby boomers and their impact on the economy.

The Fed is monitoring the housing market to see if there is any spillover into other areas of the economy. "We’ll be watching to see what extent this decline in construction and moderation in housing prices affects consumer behavior and behavior in related industries, that’s a key," said Bernanke.

Bernanke believes that the healthy job market and low interest rates will help the real estate sector rebound. He also pointed out that strength in commercial real estate might help to offset the job losses in residential real estate.

"I think there are some strong fundamental underpinnings that should help the housing market over the medium term. These include a good job market, strong income growth, demographics, and continued low mortgage rates," he said.

"Ultimately, the housing market is going to be supported by those factors," he added.

Powered by Blogger