by Calculated Risk on 5/27/2005 07:03:00 PM

"In a scenario of collapse, the damage to balance sheets and private wealth could go as far as undermining the soundness of the financial system and threatening stability of the real economy." Federal Reserve Vice-Chairman Roger Ferguson, May 27, 2005

Federal Reserve Vice-Chairman Roger Ferguson made several comments on housing in prepared remarks to a conference sponsored by the Bundesbank in Berlin. A few excerpts:

"A particular phenomenon that touches on all these issues is the movement of asset prices, especially the prices of equities and residential real estate. Because these assets are the most widely held by the general public, price changes, even when not exceptional, can significantly affect the macroeconomy. Rising asset prices support household consumption, whereas falling asset prices damp consumption. In a scenario of collapse, the damage to balance sheets and private wealth could go as far as undermining the soundness of the financial system and threatening stability of the real economy." ...

"For housing, rent-to-price ratios and income-to-price ratios are commonly used measures to assess valuation. Over the past several years, both measures have decreased sharply in many countries, and they currently are well outside historical ranges in some countries. In 2004, U.S. home prices increased 11.2 percent, their fastest pace since 1979, and right now, housing prices in many markets in the United States are relatively high when judged by conventional valuation measures"

See Speech for more.

And UPDATE: a few articles on the housing market:

Economists Wary of Interest-Only Loans

Is Your House Overvalued?

Is There a Bubble In Florida Waiting to Burst?

Is U.S. housing market a 'bubble' waiting to burst?