Speech

Recent Developments in Housing Markets: A National and Local Perspective St.Louis,Missouri March8,2006 Housing is an important sector of the farthelargestcomponentofthenation’shousing economy, in terms of share of GDP, stock.In2005,privately-owned,single-family size of the capital stock and as a housingunitscompletedtotalednearly85percent key area of national policy. My pur- ofallprivately-ownedhousingcompletions. pose thismorningistoreviewsomeimportant Mostoftheremaining15percentwascomprised housing facts and to provide a longer-run per- ofmulti-unitstructurescontainingfiveormore spective to aid in interpreting the facts. units.However,I’llmakeafewcommentsabout Beforeproceeding,Iwanttoemphasizethat housingasawhole,inpartbecausesomeimpor- theviewsIexpressherearemineanddonot tantdataarereportedforallhousingandinpart necessarilyreflectofficialpositionsoftheFederal becauseofthesubstitutabilitybetweensingle- ReserveSystem.Ithankmycolleaguesatthe familyhousesandcondominiums,apartments FederalReserveBankofSt.Louisfortheircom- andtownhouses. ments.AnthonyPennington-Cross,seniorecon- Ahouseisatangibleeconomicassetthat omist,andKevinKliesen,associateeconomist, providesaflowofservices.Thinkofthisservice providedspecialassistance.Iretainfullrespon- asashelterfromtheelements.Inmyowncase, sibilityforerrors. theshelterisforme,mywife,ourdogandlotsof stuffconnectedwithourlifestyle.Thestuffisin thebasementandgarage,whichconstituteasig- HOUSING FUNDAMENTALS: nificantshareofthetotalenclosedspace. Becausehousesareassetstradedinamarket, A NATIONAL PERSPECTIVE thequantityofhousesbuiltandsold,andthe Mentiontheword“housing”andseveral pricesatwhichtheyarevalued,aredetermined notionsprobablycometomind.Theissuemost bythefundamentalsofsupplyanddemand.There oftenraisedinrecentyearsiswhetherthereisa aretwodistinct,butcloselyrelated,marketseach housingpricebubble.Otherissuesincludeafford- withtheirownsupplyanddemandfunctions. ability,developmentandfinancing—particularly Onemarketisforthehousingstock—existing withrespecttolow-incomehouseholdsorthose houses.Thesecondisforhousingproduction— individualsjustenteringthelaborforceand newhouses. startingacareerand/orafamily. Variousassetmarketsintheeconomyare Whilenationalhousingpolicyinvolvesaset similarinmanyrespects,butalsohaveunique ofcriticalissues,todayI’llapproachthetopicof featuresdependingoncharacteristicsoftheassets. housingfromadifferentperspective—housing’s Houseshavelonglives—usuallythoughtofas recentcontributiontothenationalandlocal about50yearsonaverage—whereasautomobiles economiesandlikelyprospectsforthisyear.I’ll havemuchshorterusefullives.Houses,unlike concentrateonsingle-familyhousing,bywhich aircraft,areimmobile.Houses,unlikeblocksof I’llmeandetachedhousing.Suchhousingisby commonstock,areindivisible,exceptforsome 1 ECONOMICFLUCTUATIONS Figure 1 Metropolitan Area Comparisons—Real Appreciation NOTE:DataforchartsarefromOFHEO.TherealhousepriceindexisthenominalHPIdeflatedbytheCPIlessshelter. 2001-Q1isnormalizedto100. limitedpossibilityofdivisionintoapartments. muchgreaterwhenweexaminedatabymetro- Locationisextremelyimportanttothevalueof politanstatisticalarea.Overthepastfourquarters, houses,whereaslocationmatterslittleforagri- Phoenixleadsthelistwithapricegainof39.67 culturallandofgivenproductivity. percent;thebottomofthelistisoccupiedby Theenormousimportanceoflocalconditions Burlington,NorthCarolina,at–1.16percent. isnicelyillustratedbyrecentexperience.Data Bywayofcomparison,Missourioverthe fromtheOfficeofFederalEnterpriseHousing pastfourquartersandpastfiveyearscameinat Oversight—OFHEO—indicatethathouseprices 7.06percentand34.77percent,respectively, roseby12.95percentintheUnitedStatesasa whereastheUnitedStatesasawholecameinat wholeoverthefourquartersendingthefourth 12.95and57.68percent,respectively.TheSt. quarteroflastyear.Arizona,however,hadaprice Louismetropolitanareacameinat7.98percent gainoverthesameperiodof34.90percentwhile and39.58percent,respectively,forthepastfour Michiganhadagainofonly3.76percent.Over quartersandpastfiveyears. thepastfiveyears,theDistrictofColumbialed Economistspointtoseveralfactorsthat thelistwithagainof127percent,whereas affectthedemandforandthesupplyofhousing Indiana’sgainwas20percent.Disparitiesare services.Fromthedemandside,theseinclude 2 RecentDevelopmentsinHousingMarkets:ANationalandLocalPerspective Figure 2 Eighth District—Real Appreciation theinterestrateusedtoamortizethedebt,employ- andatotalofabout124millionhousingunitsof mentoftheownerandthefamily’safter-tax alltypes,includingmobilehomes.Dataaresome- income,propertytaxes,andnetwealth.Viewed whatsketchy,butweknowthatasignificantnum- fromthesupplyside—thebuilder’spointof berofhousingunitsaredemolishedordestroyed view—thingslikelocation,constructioncosts, eachyear.Inrecentyears,totalhousingproduc- availabilityofdevelopableland,itstopography tionhasbeenrunningabout2millionunitsper andland-useregulationsallcomeintoplay.As yearbutthenetadditiontothestockisabout1¼ istrueinallassetmarketstoagreaterorlesser millionunitsperyear.Thisnetannualflowof extent,expectationsoffuturepricescanaffect about1¼millionunitsperyearisverysmallrela- bothsupplyanddemand.Ofthesedemandand tivetothetotalstockofabout124millionunits. supplyfactors,onlytheinterestrateistruly Factorsthatdeterminethepriceofexisting commonacrossthecountryasawhole. housesare,therefore,centraltounderstanding Animportantfeatureofhousingmarketsis thepriceofnewhousesandthepaceofnew thatthestockofhousesisverylargerelativeto construction. theannualflowofnewbuildingnetofhouses Amorassofnationalstatisticsisavailable; demolishedordestroyed.IntheUnitedStates, I’veputtogetheratable(atendoftext)summa- thereareroughly75millionsingle-familyhouses rizingtherecentbehaviorofseveralkeyindicators 3 ECONOMICFLUCTUATIONS oftheU.S.single-familyhousingsector.Ona years.Thegrowthofresidentialfixedinvestment nationalscale,fundamentalsofhousingdemand contributed0.4percentagepointsoftheeconomy’s aremoreeasilymeasuredthanthoseaffecting 3.5percentgrowthinrealGDP.Remarkably,2005 supply,solet’slookatsomeofthese.Theyare wasthe10thconsecutiveyearthatresidential listedunderthetable’sthirdsection,“Financial housingexpenditureshavecontributedpositively &Other.” tooverallgrowth. Theconventionalmortgageinterestraterose modestlylastyear,butitstillremainsquitelow comparedwiththe1990s,whenitaveraged8 U.S. HOUSING FACTS AND percent.Sincehousingisarealasset,whatmat- FIGURES tersistherealinterestrate.Therealrateisoften measuredasthemarketratelesstherateofinfla- Lastyearwasanotherbanneryearforthe tion.AlthoughIdidnotlisttherealrateinthe U.S.housingsector,withsingle-familystarts table,youcanreadilyseethatin2005itaveraged andcompletionsreachingarecord-highnumber about3.25percent—derivedbysubtractingthe forthefifthstraightyear.Thetableshowsthatin lastyear’s3percentinflationratefromlastyear’s 2005,single-familyhousingstartsrose7percent. averagemortgageinterestrateof6.2percent. Thisgainwasmodestlymorethantheprevious Similartothenominalrate,realinterestrates year’sgainofabout6.5percent.Housingcomple- overthelasttwoyearshavebeenquitelowcom- tions,whichmeasurethegrossadditiontothe paredwiththe1990s—andevenstretchinginto nation’shousingstock,roseabout6.75percent. 2001.Lowrateshavebeenakeyfactorbehind Thepaceofconstructionofnew,single-family therecentstrengthinhousingconstructionat homeshasbeenprettyrapidsince2002:Starts thenationallevel. increasedbyanaverageofnearly8percentper Another,essentiallyequivalent,wayoflook- year,whilecompletionsincreasedbyabout7 ingattheeffectsoflowinterestratesistofocus percent.Asseeninthetable,thepercentage oncapitalvalues.Thepriceofanassetriseswhen increasesinbothstartsandcompletionsaresig- theinterestrate,orcapitalizationrate,falls.Most nificantlylargerthantheiraverageannualrates arefamiliarwiththisfactforabond—afixed ofincreasesseenduringthe1990s. streamofinterestpaymentscommandsahigher Thesurgeinstartsandcompletionsreflects, pricewheninterestratesfall.Lowinterestrates toalargeextent,amarkedincreaseinthedemand havehadmuchtodowithrisinghousevalues; fornewandpreviouslysoldsingle-familyhomes. thehighervalueshavemadenewconstruction Althoughthegrowthofnewandexistinghome profitable,andbuildershaverespondedby salesslowedin2005,bothgrowthratesremained increasingtherateofbuilding. positiveandthelevelofsales—aswithhousing Butotherinfluencesbesidesinterestrates startsandcompletions—rosetorecordhighlevels affecthousingdemand.Oneusefulcomposite lastyear. measureisthehousingaffordabilityindexcon- Eventually,growthofhousingasapercentage structedbytheNationalAssociationofRealtors. ofGDPwillend—otherwise,GDPwillbecom- Theindexisbasedonkeyfactorsincludinghouse prisedsolelyofhousing.Increasesintheinven- prices,interestratesandincome.Lastyear,the toryofnew,unsoldhomesoverthelastcouple modestriseininterestratesandslowergrowth ofyears,asshowninthetable,suggestthatthe ofrealhouseholdafter-taxincomewerekeycon- slowingmayalreadybeunderway.In2005,new tributorstoasignificantdeclineintheindex. single-familyhomesforsalerose21percentto Nevertheless,thehousingsectorcontinuedto 521,000units,bestingthepreviousyear’s14per- steamahead.In2005,nominalresidentialfixed centjump.Thesimpleeconomicsofsupplyand investmentasashareofnominalGDProsetoa demandsuggeststhattoreduceinventory—orat littlemorethan6percent,itshighestsharein50 aminimumtoreducegrowthininventory—the 4 RecentDevelopmentsinHousingMarkets:ANationalandLocalPerspective housingindustrymayneedtoeithercurtailbuild- aboutpriceappreciation,buildingcostsandreg- ingactivityortocutprices. ulations,householdincome,interestratesand Historically,averagemarketpricesofhouses soforth.Atvarioustimesthroughouthistory,as rarelydeclineonayear-to-yearbasis.Since1964, the1990stelecomboomrecentlydemonstrated, theCensusBureau’smediansalespriceofnew, expectationsoffuturepricescanbecomedetached single-familyhomepriceshasdeclinedonly fromtheirfundamentals.Inpractice,thereisno twice—in1970and1991.Eveninrealterms, perfectdefinitionofapricebubble;so,identify- ingabubbleinreal-timeisinherentlyajudgmen- declinesinnew,single-familyhomesarerela- talexercise.Indeed,giventhatbubblesalways tivelyrare:Since1964,therealmedianpriceof burst—ifthereisnoburst,thentherewasno new,single-familyhomeshasdeclinedinonly bubble—clearadvanceevidenceofabubblecan fiveyears,andnotoncesince1992.1Thesame neverexist.Iftheevidencewereclear,thenevery- patterngenerallyholdsforpreviouslysoldhouse onewouldknowaboutthebubbleandforthcom- prices. ingburst,butthenthebuyingthatcreatedthe Lastyear,averageU.S.homepricesroseagain bubblewouldnotoccurinthefirstplace.So,if but,asthetableindicates,bywidelyvarying youhaveanacademicinterestinhouseprices,I ratesdependingonwhatmeasureisused.Earlier, recommendthatyouwaitafewyears.Ifyou Iemphasizedthathousepriceincreasesvary haveadirectfinancialinterest,Ican’thelp enormouslyacrossdifferentmetropolitanareas, much—you’reonyourown! andnowI’llemphasizethevariabilitydepending Housingexpertsemployseveralapproaches onwhatmeasureisexamined.Pricesofnew toattempttodeterminethereasonablenessof homes,asseenbytwoCensusBureaumeasures— houseprices.Onelinksthehousepricetoa themediansalesprice,andaquality-adjusted measureofhouseholdincomeorthepricethat price,whichcalculatesthepriceofahomeof consumerswouldhavetopaytorentthehouse.2 similarqualityacrosstime—rosebylessthan5 Onemeasureofthelatteristheowners’equiva- percent.Pricesofpreviouslysoldhomesrose lentrentcomponentoftheconsumerpriceindex. muchfaster.Twoofthemostpopularmeasures Since2001,theOFHEOandNationalAssociation ofpreviouslysoldhomepricesarethosereported ofRealtorsmeasuresofhousepriceshaverisen bytheOFHEO,theregulatorofFannieMaeand 55and49percent,respectively,whilerentshave FreddieMac,andtheNationalAssociationof onlyrisen16percent.Theseobservationsindi- Realtors.Lastyear’srelativelysmallincreasein catethattheprice-to-rentratiohasrisennotice- thepricesofnewhomesmayreflectlastyear’s ablyandmightbereadassuggestingthathouse surgeinunsoldhomes.Thevariousindexeshave pricesareexcessive. theiradvantagesanddisadvantages,depending However,arecentstudybytheOrganisation oncoverageandmethodofconstruction. forEconomicCo-operationandDevelopment Rapidincreasesinhousepricesoverthepast suggeststhatU.S.housepricesarenotparticu- fewyearshaveelicitedmuchcommentary,pro larlyunreasonablebasedonhousingfundamen- andcon,aboutapricebubble.Inamarketecon- tals.3EconomistsattheNewYorkFed,usinga omy,pricesadjusttosupplyanddemandcondi- similaranalysis,havecometothesameconclu- tions.Giventhathousesareassetswithalong sion.ResearchersattheSt.LouisFedalsoreached life,demandandsupplydependimportantlyon asimilarconclusionbasedonananalysisthat expectationsaboutthefuture—expectations usedaprice-to-incomemeasure.4Theconven- 1 Therealpriceisthenominal(current-dollar)pricedeflatedbythechain-priceindexforpersonalconsumptionexpenditures. 2 KreinerandWei(2004). 3 Girouardetal.(2006). 4 SeeMcCarthyandPeach(2004)andGuidolinandLaJeunesse(2005). 5 ECONOMICFLUCTUATIONS tionalview,whichIsubscribeto,isthatahous- portthisview.However,ineconomists’technical ingpricebubbledoesnotexistonanational lingo,housingisan“inferiorgood,”whichsimply averagebasis,buttheremaybepocketsofthe meansthatasahousehold’sincomeincreasesit countrywherepriceshaverisenbeyondlevels willconsumemorehousingbuttheincreasewill thatcanbejustifiedbyeconomicfundamentals. besmallerthantheincreaseinincome.Food,for Letmealsoemphasizethatoutsizeprice example,isamuchmoreextremeexampleofan increasesarenotthemselvesaclearguideto inferiorgood.Theshareofincomedevotedto overpricing.Aneconomicallystagnantarea, foodfallsrapidlyasincomerises. wherepriceshavechangedlittle,maystillhave Fromalocalperspective,then,wecanexpect pricesthataretoohighgivendecliningincome thatlocationswhereincomesarerisingwill andeconomicactivityintheregion. experienceanincreasingdemandforhousing, Fromalonger-termperspective,thereissome butnotatadollarfordollarrate.Aswithsomany concernthatrecentdeclinesintheshareofhouse- aspectsoftheeconomicsofhousing,however, holdsintheprimehome-buyingagecohorts thesituationcanbecomplicatedanduncertain. couldeventuallyweakenhouseprices.Asseen Ofthemetropolitan-areapriceincreaseslastyear, inthebottomsectionofthetable,relativetothe 10ofthetop20wereinFlorida.Theincreases totalpopulationofhouseholdsthesharesof mayfaroutrunincreasesinlocalincomebecause householdsinthe25-to-29and30-to-34age theyaredrivenimportantlybybuyersfromother cohortshavebeendeclininginrecentyearsand areasinvestinginvacationpropertiesorfuture aresignificantlybelowtheir1990-to-1999average. retirementhomes,forexample.Insomeresort Theimplicationsofthedeclineforthenear-term communities,peoplenotethatfull-timeresidents outlookareprobablynottoosignificant.Atsome workinginresortfacilitiescannotaffordtolive point,decliningsharesofhouseholdsintheage intheirowntowns.Thus,analysisrelatinghouse groupsthatcommonlyfitthefirst-timehouse pricestolocalincomecangofarastray,because buyerprofilemightbecomemoreimportant. insomecasestherelevantincomeconceptcovers theclassofhigh-incomefamiliesfortheentire country,oreventhehemisphere.Thus,itisdiffi- HOUSING FUNDAMENTALS culttofindaccuratemeasuresofeconomically justifiedhouseprices. FROM A LOCAL PERSPECTIVE Anothereconomicaspectcrucialtoexamin- Becausehousesarenottransportable,and inglocalhousingconditionsisthecentraltenet becausecommutingdistancesarenecessarily thatpeopleandcapitalwill,allelseequal,move limited,housingmarketsaresegmented.Particu- tolocationswherethestandardsoflivingare larmarketsroutinelyexperiencequitedifferent higher.Ifahouseholdseesthatitcanexpectto ratesofpricechangeandnewconstruction earnahigherafter-taxrealincomeinSanJose becauselocaleconomicconditionscanvary thanitcaninSt.Louis,thefamilywillpackup tremendouslyandbecausefeaturesofthelocal andheadwest.Butofcourse,allelseisnotequal, economy,suchasbuildingregulations,candiffer sothehouseholdwillalsoconsiderotherfactors, substantially.Sometimesparticularareasexperi- suchascommutingtimeorpopulationdensity. enceconsistentlystrongorweakperformance Nevertheless,wetendtoobservethatplaceswith overmanyyears;sometimesareaperformanceis increasingincomealsoexperienceincreasesin subjecttosharpreversals.Lookingoverthemap, employmentandpopulation.Naturally,higher experiencevariesalloverthemap! incomeandeconomicgrowthinSanJosethanin Intermsofthedemandforhousing,itisnat- St.Louisincreasesthedemandforhousingin uraltoconcludethathouseholdswithhigher SanJoserelativetothedemandinSt.Louis. incomeswillwantbiggerandbetterhousing,all Butdoeshigherincomeandgreaterpopula- otherthingsbeingequal.Empiricalresultssup- tionalwaysimplyhigherhouseprices?Not 6 RecentDevelopmentsinHousingMarkets:ANationalandLocalPerspective automatically.Theoutcomedependsonhow fourthquarterof2005.5Usingtherepeatsales price-sensitivebuildersanddevelopersareand priceindexreportedbyOFHEO,wecanseethat howmuchlandisavailable.Forexample,con- St.Louishasthelowestappreciation.Overthe siderametropolitanareathatisgrowingrapidly. five-yearperiod,realpricesincreasedby61per- Developersandbuildersanticipatefuturegrowth, centinBoston,112percentinLosAngeles,100 whichleadstomanynewprofitabledevelop- percentinWashington,D.C.,and26percentin mentsandredevelopments.Butdevelopersneed St.Louis.Thesenumbersimplyaquarterlyreal tobepaidforthecostofconstructionplusthe appreciationrateofapproximately1percentin costofbuyingtheland.Inlocationswhereunde- St.Louis,lessthanathirdasmuchasinLos velopedlandisscarce,perhapsbecauseofnatu- AngelesandWashington,D.C. ralorman-madeimpediments,theacquisition Wecanexaminethesameissueatasomewhat costofthelandwillbehigherandwillrisemore moreaggregatedlevel,usingCensusregions.The asdemandfornewhousesincreases.Clearly, Pacificregion,whichincludesCaliforniaand citiessurroundedbymountainsorlargebodies Arizona,experiencedthelargestappreciation, ofwaterrestrictdevelopmenttocertainareas. Somecitiesareencumberedbyregulationsor whilethoseregionsthatcomprisesignificant politicalconcernsthathamstringdevelopers, portionsoftheEighthFederalReserveDistrict whichincreasethecostofbuildingorrenovating. laggedwellbehind.Fromthefirstquarterof2000 Thegreatertheimpedimentstodevelopment, throughthefourthquarterof2005,thePacific thelargerwillbetheeffectofrisingdemandon region’srealappreciationwas82percent,while pricesofexistinghouses. theEastandWestSouthCentralregionsexperi- Thebasiceconomicsofhousingatthelocal encedarealappreciationoflessthan17percent.6 levelthustellsusthatinlocationswheredevelop- Rapidhouse-priceappreciationonthecoasts mentisrelativelyunrestricted,weshouldgener- doesnotcomewithoutacost,oratleastarisk. allyseeloweraveragepricesthaninlocations Forexample,fromthelate1980stothemid1990s, withmanyrestrictions.Anincreaseindemand realhousepricesdeclinedby30percentin intheformer,then,wouldnotbeexpectedto Boston,by36percentinLosAngeles,by20per- raisepricesasmuchasinthelatter.Ingeneral, centinWashington,DC,butbyonly11percent wecancharacterizetheMidwestashavingplenty inSt.Louis.Infact,since1982,St.Louishasnot ofdevelopablelandandthecoastalregionsas hadanominaldeclineinhouseprices.Bycon- havingascarcityofdevelopableland.Therefore, trast,ittookBostonandLosAngelesapproxi- weshouldexpecttoseehigherandpotentially mately10yearsfortheirnominalpricestorecover increasinghousepricesonthecoastsrelativeto enoughtorestorepricestoabreakevenlevel. theMidwest.Andthatisgenerallywhatwedosee. A LOCAL PERSPECTIVE REGIONAL HOUSE PRICE Thereisalsosubstantialvariationinthe DEVELOPMENTS appreciationofrealhousepricesformetropolitan Asanexample,let’scomparerealhouse areasintheEighthFederalReserveDistrict.For priceappreciationfortheBoston,LosAngeles, example,fromthefirstquarterof2000through Washington,D.C.,andSt.Louismetropolitan thefourthquarterof2005,Springfield,Missouri, areasbetweenthefirstquarterof2000andthe LittleRock,Arkansas,andLouisville,Kentucky, 5 TherealpriceiscalculatedasthenominalpricedeflatedbytheCPIlessshelter. 6 ThesearetheEastSouthCentral(Alabama,Kentucky,MississippiandTennessee)andWestSouthCentral(Arkansas,Louisiana,Oklahoma andTexas)regions. 7 ECONOMICFLUCTUATIONS Table 1 appreciatedby14,14,and11percent,respec- castingthenear-termprospectsfortheU.S.hous- tively.Theseincreasescomparewitha26percent ingsectorhasalwaysbeendifficultbecausethe increaseforSt.Louis,butgainsoflessthan8 housingindustryfluctuatesalot,andthefluctu- percentforJeffersonCity,Missouri,andMemphis, ationsdependonchangesinincome,interest Tennessee.Asaresult,ifSt.Louishasexperienced ratesandotherconditionsthatarethemselves amodestappreciationcomparedtothecoastal difficulttoforecast.Since2002,forecastershave significantlyunderestimatedthegrowthofreal regions,thenothermetropolitanareasinthe residentialfixedinvestmentintheGDPaccounts— EighthDistricthaveexperiencedevenlessreal themainindicatorofthestrengthoftheU.S. appreciation. housingsector.Forinstance,inDecember2004, theconsensusoftheBlueChipforecasterswas thatrealresidentialfixedinvestmentwould HOUSING PROSPECTS FOR 2006 declinebyabout3.25percentin2005.Instead, I’llclosewithafewcommentsaboutthe thisinvestmentrosebyabout7.5percent.7Cur- nationalprospectsforhousingthisyear.Fore- rently,forecastersareonceagainexpectinghous- 8 RecentDevelopmentsinHousingMarkets:ANationalandLocalPerspective ingactivitytomodestlydetractfromrealGDP Fallis,George;Hosios,ArthurJ.andJump,GregoryV. growthin2006.Asnotedintheminutesofthe “HousingAllowances,Non-profitHousing,and FOMCmeetingheldonJanuary31,2006,policy- Cost-EffectiveProgramChoices.”JournalofHousing makersareexpectingsomeweakeninginhousing Economics,1995,4(2):136-152. construction.Tosomeextent,growthnationally willbeinfluencedbythepaceoftheongoing Girouard,Nathalie;Kennedy,Mike,vandenNoord, Paul,andAndre,Christophe.“RecentHousePrice rebuildingactivityintheGulfCoastareasravaged Developments:TheRoleofFundamentals.” byHurricanesKatrina,RitaandWilmalastyear. EconomicsDepartmentWorkingPapersNo.475, Nationally,recentsurveysofconsumers— OrganisationforEconomicCo-operationand suchasthewell-knownUniversityofMichigan Development,January2006. consumersentimentsurvey—suggestamarked increaseinreticencebyconsumerstopurchasea Green,K.RichardandMalpezzi,Stephen.APrimer home.Myhunch,though,isthathousingactivity onU.S.HousingMarketsandHousingPolicy. willstabilizeandremainatahighlevelthisyear. AREUEAMonographSeriesNo.3.Washington,DC: IbasethisforecastonthebeliefthattheFOMC TheUrbanInstitutePress,2003. willkeepunderlyinginflationlowandstable, andthatthegrowthofrealhouseholdincome Guidolin,MassimoandLaJeunesse,Elizabeth. willrecovernicelyduetothewaninginfluence “Bubbling(orJustFrothy)HousePrices?”Federal oflastyear’sspikeinenergyprices.Continued ReserveBankofSt.LouisNationalEconomic healthyjobgrowthwillalsohelpkeephousing Trends,November2005. conditionsatahighlevel. Thatsaid,someslowinginthegrowthof Krainer,JohnandWei,Chishen.“HousePricesand averagehomepricesnationallyseemsareasonable FundamentalValue.”FederalReserveBankofSan expectationatthisjuncture.Accordingly,the FranciscoEconomicLetter,No.2004-27,October1, marginalcontributiontothepaceofconsumer 2004. spendingstemmingfromthewealtheffect—that is,fromhouseholdsextractingaportionoftheir McCarthy,JonathanandPeach,RichardW.“Are HomePricestheNextBubble?”FederalReserve homeequitytospendongoodsandservices—is BankofNewYorkEconomicPolicyReview, notlikelytobeasignificantconcern.Thereason December2004. isthatothereconomywidedevelopments—espe- ciallyincomeandemploymentgrowth—typically Muth,RichardF.“TheDemandforNon-Farm exertamuchgreaterinfluenceontheconsumer’s Housing,”inArnoldHarberger,ed.,TheDemand pocketbookandspendinghabitsthandoesthe forDurableGoods.Chicago:UniversityofChicago stateofthehousingindustry. Press,1960. REFERENCES Bradbury,KatherineandDowns,Anthony.Do HousingAllowancesWork?Washington,DC: BrookingInstitute,1981. 7 Thesearefourthquarter-to-fourthquarterpercentchanges. 9

William Poole (2006, March 7). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_20060308_poole

@misc{wtfs_speech_20060308_poole,
  author = {William Poole},
  title = {Speech},
  year = {2006},
  month = {Mar},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_20060308_poole},
  note = {Retrieved via When the Fed Speaks corpus}
}