by Calculated Risk on 8/27/2005 06:38:00 PM

From FED Chairman Alan Greenspan's closing remarks at Jackson Hole, Wyoming:

"... the housing boom will inevitably simmer down. As part of that process, house turnover will decline from currently historic levels, while home price increases will slow and prices could even decrease. As a consequence, home equity extraction will ease and with it some of the strength in personal consumption expenditures. The estimates of how much differ widely."

Emphasis added. I believe prices will decrease. And the following, on the relationship between home equity extraction and the currenct account (mostly trade) deficit, is important in how the imbalances will unwind:

"The surprisingly high correlation between increases in home equity extraction and the current account deficit suggests that an end to the housing boom could induce a significant rise in the personal saving rate, a decline in imports, and a corresponding improvement in the current account deficit."

And part of Greenspan's conclusion is a little scary:

"Surely difficult challenges lie ahead for the Fed, some undoubtedly of our own making, and others that will be thrust on us by market or other forces."