The 5-year-old U.S. housing boom probably will slow in 2003 and could suppress consumer spending, Federal Reserve Chairman Alan Greenspan warned Tuesday.
His comments helped send shares of home builders tumbling on a day when Wall Street already was rattled by renewed fears that war is imminent.
A home-mortgage refinancing boom and rising home values have been key pillars supporting consumer spending, the main force keeping the economy going. But Greenspan said an expected cooling on the refinancing and home appreciation fronts could turn homeowners into more cautious consumers.
“The frenetic pace of home equity extraction last year is likely to appreciably simmer down in 2003, possibly notably lessening support to household purchases of goods and services,” the central bank chief said in a speech delivered via satellite to a meeting of the Independent Community Bankers of America in Orlando, Fla.
While ruling out the idea that the housing market has become a dangerous bubble, Greenspan raised the specter that the torrid pace of price increases could slow -- and that prices might decline in some regions. “Clearly, after their very substantial run-up in recent years, home prices could recede,” he said.
Analysts said the fact that Greenspan raised the possibility of home price declines could have a chilling effect on the housing market.
“All of a sudden -- after all he has said about the house price topic -- to say home prices could recede, I think struck people, at least those who follow this sort of thing, as stunning,” said David Seiders, chief economist for the National Assn. of Homebuilders.
Housing shares also were hurt by comments by Lennar Corp., one of the biggest builders. The firm said late Monday that orders in the three months ended Feb. 28 rose 7% from a year earlier, apparently slower than some analysts expected.
Lennar shares slumped $3.91, or 7.2%, to $50.55. Among other builders, KB Home dropped $2.79 to $44.35, Centex lost $3.82 to $51.68 and Standard Pacific was down $1.33 to $24.44.
Still, Greenspan said he did not view the national housing market overall as a bubble. “Any bubbles that might emerge would tend to be local, not national, in scope,” he said.