Monday, October 16, 2006

The Fed. says the real estate market's not so bad

Here's the text of a recent, informative speech by the Fed's vice chairman, Donald Kohn. It's very upbeat amid the constant drumbeat of negative housing news we've been hearing in the media. Some critical points he makes:

He doesn't see any bust in the housing market, it's merely a "correction." The market is simply returning to "normal" in many of the extremely overheated regions of the country.

New home sales are near their bottom. Many of the data on new housing starts and new home sales figures have been pretty dire, but Mr. Kohn suggests growth in new home starts should be returning.

Low interest rates foretell short downturn. This is an underreported story. The last six months or so mortage rates have been headed slightly downward. This isn't a repeat of the 1980s and 15+ interest rates. And my reading of the Fed. is that there next move will be downward.

Income growth should underpin housing demand. The unemployment rate is down to 4.6% and incomes are rising. As home prices stop rising, the employment market will support housing demand.

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