American consumers have continued to spend at a lively clip, despite losses in the stock market over the past several years. The reason consumer sentiment and spending has remained high is that homeowners have experienced substantial gains in the value of their properties. Their continued spending, in turn, tamed what could have been a deep recession and turned it into a mild downturn.
The question arises as to whether housing prices will prove to be a bubble in the same way stock run-ups turned out to be a bubble in the late 1990s.
Economists say housing prices in the future probably won’t continue to rise as fast as they have been but present valuations do not constitute a speculative bubble. Even Federal Reserve Chairman Alan Greenspan has said it is “very difficult” to produce a bubble in the housing market and he doesn’t foresee one forming.
Source: David Wessel, Rest Easy, All Ye Homeowners, Wall Street Journal, May 23, 2000.
For text (WSJ subscribers) http://online.wsj.com/article/0,,SB1022099662248723480-search,00.htm
For more on Consumers/Standard of Living http://www.ncpa.org/iss/eco/
FMF Policy Bulletin\28 May 2002
