WASHINGTON – Federal Reserve Chairman Alan Greenspan (search), softening his concern about a possibly overheated housing market, said Monday many homeowners have enough equity to cushion the shock if prices drop.
While his remarks delivered via satellite to a banking conference in Palm Desert, Calif. were devoted almost totally to the housing market, Greenspan did briefly mention that the Fed will be keeping a close eye on economic activity in the aftermath of hurricanes Katrina and Rita.
"In the weeks and months ahead, the Federal Reserve (search) will continue to closely follow the consequences of the recent devastating events in the Gulf Coast region in order to assess their implications for our economy," the Fed chief said.
On housing, Greenspan continued to register concerns about soaring house prices and some people taking out risky mortgages to buy expensive homes that they otherwise couldn't afford.
But he indicated that most homeowners were in a fairly good position in the event that house prices drop.
"The vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices," he said. Less than 5 percent of home borrowers were highly leveraged, according to one measure, he cited.
An end to the housing boom, meanwhile, could have a silver lining, the Fed chairman added.
Greenspan hypothesized that it probably would be accompanied by a moderation in the growth of consumer spending. That could lead to a boost in Americans' personal savings rate, which has been dismally low, and could curb Americans' insatiable appetites for foreign-made goods, helping to narrow the United States' bloated trade deficit, he said.
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