Housing Downturn May Not Crimp
Spending, Treasury Official Says
By BENTON IVES-HALPERIN
October 6, 2006
WASHINGTON -- A Treasury official played down the potential effects of a rapidly cooling housing market on Americans' spending habits, saying U.S. consumers have weathered larger asset corrections in the past.
"It's hard to see how the housing wealth effect is going to really undermine consumption going forward," Treasury Acting Assistant Secretary for Economic Policy Robert Stein said during a briefing with reporters. "Fears of a wealth effect on consumption are overblown."
Mr. Stein pointed to positive consumption growth during the recession of 2001, even as the country lost about $9 trillion in stock market wealth, as evidence that U.S. consumers can soldier on in the face of large corrections to asset value.
He also noted that the reduction in real estate wealth isn't likely to be as large as the previous stock market adjustment. And even if the coming housing correction is as severe as the stock market adjustments earlier in the decade, "there are ways to wring out that overvaluation without a drop in housing wealth," Mr. Stein said. For example, there could be an increase in rents or an increase in incomes, Mr. Stein said.
Earlier this week, Federal Reserve Chairman Ben Bernanke said the rapidly slowing housing market will probably slice about one percentage point off U.S. economic growth in the second half of 2006 and continue to drag on growth next year. Mr. Stein agreed that the Fed's estimates for a significant reduction in economic activity from the cooling housing sector are likely on target.
Spending, Treasury Official Says
By BENTON IVES-HALPERIN
October 6, 2006
WASHINGTON -- A Treasury official played down the potential effects of a rapidly cooling housing market on Americans' spending habits, saying U.S. consumers have weathered larger asset corrections in the past.
"It's hard to see how the housing wealth effect is going to really undermine consumption going forward," Treasury Acting Assistant Secretary for Economic Policy Robert Stein said during a briefing with reporters. "Fears of a wealth effect on consumption are overblown."
Mr. Stein pointed to positive consumption growth during the recession of 2001, even as the country lost about $9 trillion in stock market wealth, as evidence that U.S. consumers can soldier on in the face of large corrections to asset value.
He also noted that the reduction in real estate wealth isn't likely to be as large as the previous stock market adjustment. And even if the coming housing correction is as severe as the stock market adjustments earlier in the decade, "there are ways to wring out that overvaluation without a drop in housing wealth," Mr. Stein said. For example, there could be an increase in rents or an increase in incomes, Mr. Stein said.
Earlier this week, Federal Reserve Chairman Ben Bernanke said the rapidly slowing housing market will probably slice about one percentage point off U.S. economic growth in the second half of 2006 and continue to drag on growth next year. Mr. Stein agreed that the Fed's estimates for a significant reduction in economic activity from the cooling housing sector are likely on target.
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