Greenspan said today that the US housing boom is sure to end eventually and there should be a drop in home prices.
[Webmaster’s Note: I’m am fairly certain most people do not believe the housing boom will go on forever so tell us something we don’t know.]
A weakened housing market would take the punch out of an inflation threat and therefore the pressure off the Fed to keep raising short term rates. Consumer spending is reported to account for 70% of the US economy and this driven largely by the ability to tap home equity.
To date, some US economists believe the “wealth effect” of housing are offsetting the negative influence of rising oil prices. [Note: Paid Subcr.] The ability to pull equity out of the housing sector has helped consumers maintain discretionary spending despite rising oil prices.
Besides rising oil prices, labor costs are expected to rise keeping pressure on the Fed to raise short term rates.
The Fed believes that home prices will continue at their brisk pace through the third quarter, before easing in the final quarter of the year.
Here’s a great article written last May called “Don’t Buy Housing Bubble Propaganda” by the webmaster of one of the best economic blogs out there: Big Picture
The author discusses mortgage rates and changing demographics better than any article I have read on this topic. One item of particular interest: More than 80% of all stock purchases are speculative. According to the NAR, housing is currently at 23% which seems to pale in comparison, doesn’t it?