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Greenspan: Housing boom is over
Ex-Fed chief tells New York dinner that it's too early to judge if energy price boost will impact consumer spending.
May 18, 2006: 10:52 PM EDT


NEW YORK (Reuters) - Former Federal Reserve Chairman Alan Greenspan said Thursday that the "extraordinary" boom in the U.S. housing market in recent years is over.

"This has been quite an extraordinary boom," Greenspan told a Bond Market Association dinner in New York. "The boom is over. I think we can safely say that with a strong degree of confidence."

Greenspan said there was a "high degree of froth in the system," and that it was clear that two things were waning: people using rising home values to pull cash out of their home equity and the turnover of home sales.

He said it wasn't clear how this will impact the notoriously resilient U.S. consumer.

Similarly, the former Fed chief said it was too soon to say how the latest rise in energy prices will impact consumer spending or feed through to inflation.

He noted that up to now profits for firms outside the financial and energy sectors have not been hurt by higher energy costs.

The ability of U.S. industry to adapt to challenging circumstances and maintain its productivity levels have shielded the economy from these developments in the past, he added.

"And I suspect that is going to continue," Greenspan said.

On Wednesday, data showing an unexpectedly large rise in U.S. consumer prices in April spooked financial markets.

The blue chip Dow Jones industrial average suffered its biggest point drop in more than three years, while European markets tumbled on concerns the Fed would need to raise interest rates more to stem inflation.

U.S. Treasury prices also fell, though they rebounded strongly on Thursday in response to signs of slowing employment growth in the U.S. manufacturing sector. Stocks fell again on Thursday.

Overall consumer prices have risen 3.5 percent in the last 12 months, while the core consumer price index, which excludes the effects of volatile food and energy costs, is up 2.3 percent in the year. (For more on the outlook for inflation, click here).

The Fed has raised interest rates in 16 consecutive meetings since June 2004, but traders and analysts have had mixed views over whether the Fed would tighten again in June, raising its benchmark rate to 5.25 percent, or pause.

Greenspan departed from the Fed on Jan. 31. He was the second-longest serving chairman in the Fed's 92-year history, having served more than 18 years.

Greenspan was succeeded by Ben Bernanke, who in separate remarks Thursday said the U.S. housing market was cooling, and that so far the slowdown appeared to be orderly. (Full story).

http://money.cnn.com/2006/05/18/news/economy/greenspan/index.htm

[billy]

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