Chief Economist David Seiders of the Senate Economic Policy and Housing and Transportation Subcommittees said that the various economic and financial market fundamentals figure to be supportive of housing demand for the foreseeable future.  There also are considerable uncertainties about the impacts on consumer spending from a fading housing wealth effect as well as from the impacts of “payment shock” on home owners facing upward adjustments to monthly payments on “exotic” types of adjustable-rate mortgages (ARMs).

“In retrospect, it was the finance- and price-driven acceleration of buying for homeownership and for investment that drove housing market activity into unsustainable territory during the boom,” he said

The record housing starts and sales of the past two years were well above levels supportable by demographics and other fundamental demand factors, and were fueled to a great extent by investors and speculators seeking to make a quick profit and through the surge of unconventional ARMs, according to Seiders. 

After posting double-digit gains during the past two years, national home price appreciation is expected to remain relatively flat for the foreseeable future. “Indeed, some decline is a distinct possibility, and the rate of price appreciation should remain below trend for some time,” said Seiders.

And while the current downswing in home sales and housing production will continue to detract from overall economic growth through mid-2007, Seiders said that much of this negative impact should be offset by strengthening activity in other sectors of the U.S. economy.

Edwina Baniqued