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Mix-Ansicht- Still Blowing Bubbles - Stephen Roach - Cosa, 20.07.2002, 19:13
- Re: noch muss Greenspan aufpasssen, dass er nicht auf den Schleimspuren - kingsolomon, 21.07.2002, 09:40
- Re: Irrational Adulation - PuppetMaster, 21.07.2002, 10:57
Still Blowing Bubbles - Stephen Roach
Hier ein Artikel von Stephen Roach aus dem Global Economic Forum von MorganStanley zum US-Immobilienmarkt, zur nächsten Bubble...
<font size="4">Still Blowing Bubbles </font>
Stephen Roach (New York)
I'll be the first to concede that the US economy has been more resilient than I had expected in this post-bubble era. So far, all we have seen is the mildest and shortest recession on record -- a surprisingly benign outcome given the seemingly lethal combination of rising unemployment and a sharply negative equity wealth effect. Ever-rising property values -- and the ability of households to extract purchasing power from these inflated assets -- appear to be one of the key missing pieces of this puzzle. Can this asset-driven growth dynamic be sustained?
The short answer is, I doubt it. Three key reasons come to mind: First, the housing cycle is extended and increasingly vulnerable to a downturn. Second, the American consumer must now face up to the legacy of an asset-driven consumption binge -- a debt overhang with a painful workout. A third consideration could prove most vexing. The Federal Reserve is doing everything in its power to forestall the endgame. Monetary policy is being aimed increasingly at prolonging the housing cycle -- a strategy that runs a growing risk of adding yet another bubble to the Fed's recent track record. To me, all this paints a picture of an increasingly slippery slope for an already precarious US economy. In what follows, I deal with each of these three considerations in turn.
By any standard, this is an aging housing cycle. For starters, it is the longest upswing of new home construction of the post-World War II era. It's now in its eleventh year, more than double the length of the typical upleg of a homebuilding cycle. Yet the latest numbers on the supply side of the housing market are starting to look a bit toppy. As of June 2002, total housing starts are off about 6.5% from their February 2002 high. However, they have a long way to go on the downside if this is indeed the turning point. At an annualized rate of 1.7 million units in June, housing starts remain 10% above the long-term average (1.5 million units from 1959 to date) and more than double their 1991 lows. Even so, the demand side -- as gauged by trends in home sales -- remains firm. Since early 1995, sales of new and existing homes combined have risen by 36%, well in excess of the 27% cumulative rise in real GDP over the same period. At the same time, house-price appreciation is now beginning to edge off -- a classic end-of-cycle early warning sign. House-price appreciation moderated to a 6% YoY rate in early 2002; while that's a discernible slowing from the heady 9.3% peak rate of price appreciation in 1Q01, it is still a relatively vigorous increase in an otherwise low-inflation climate.
A downturn in the housing cycle could prove to be a formidable problem for the American consumer. That's because individuals have become overly reliant on property wealth. Currently (1Q02), the value of household real estate assets stands at 159% of disposable personal income; while that's down slightly from the record 162% in late 2001, it's still equal to the prior peak hit during the housing bubble of the late 1980s. Moreover, since the popping of the equity bubble, there has been an important shift in the mix of household sector wealth. At Nasdaq 5000 (1Q00), household equity holdings of $9.4 trillion were nearly double the net equity of $5.6 trillion in residential real estate; by contrast, only two years later (1Q02), household equity holdings had fallen by nearly 40%, to $5.7 trillion, whereas net property wealth increased by 20%, to $6.7 trillion. Once again, the home is the average
American's most important asset.
Asset appreciation is one thing. But putting it to use in supporting economic activity is another thing altogether. And, of course, that's exactly what's happened in recent years, as homeowners have been quite aggressive in tapping the home equity till to fund personal consumption. As mortgage interest rates have tumbled, US households have aggressively refinanced their mortgages to lock in lower borrowing rates. But there's an important twist to the tale: Since 1998, the value of newly refinanced mortgages has been about 6-7% larger than the existing debt it replaces. Federal Reserve estimates suggest that such equity extraction amounted to about $55 billion in 1998 and early 1999; moreover, a back-of-the-envelope calculation places the amount between $70 billion and $80 billion in 2001. This increment is the equity extraction that can then be either spent or saved. Fed survey data suggest a little more than 50% of these proceeds were spent -- either on home improvements or discretionary consumption; about 30% was directed at debt repayments, and another 20% allocated to real estate and business investments. Needless to say, the proceeds of the refi cycle have come in quite handy for the beleaguered American consumer.
But there's dark side to asset-driven consumption binges that could end up haunting the American homeowner -- an ominous debt overhang. That stems from the increasingly aggressive extraction of purchasing power from unrealized capital gains on homes and equities alike. Largely as a result, total household sector debt now stands at a record 75% of nominal GDP, ten percentage points higher than it was at the onset of the last cyclical recovery in the early 1990s. Nor has the burden of servicing this debt been tempered by 40-year lows in short-term interest rates. Household sector debt service as a share of disposable personal income still stood at 14.1% in 1Q02 -- down only slightly from the record 14.3% reading hit in the final period of 2001. The impact of low interest rates has obviously been offset by the massive expansion of outstanding household indebtedness. That leaves overly indebted American consumers exceedingly vulnerable to either a shortfall in income generation or a backup in market interest rates. Further asset-driven impetus to US economic growth can only exacerbate those concerns, in my view. It simply sets America up for a bigger fall. Nor do I just worry about borrowers in this climate. As the recent loan-loss reserve announcement by Capital One Financial Corporation indicates, the risks to lenders can hardly be minimized.
That's where the Fed comes in. I must confess my surprise and disappointment at Fed Chairman Alan Greenspan's assessment of this issue in his recent monetary policy report to the Congress. He left little doubt, in my mind, that the central bank would be delighted if American households continued to spend newly extracted equity from rapidly appreciating property values. He went out his way to stress the role that monetary policy has played in supporting consumer spending by encouraging"households to purchase homes, refinance debt and lower debt service burdens, and extract equity from homes to finance expenditures." In a shaky demand climate, this source of growth has suddenly taken on even greater importance.
I find this approach particularly worrisome in a post-bubble US economy. With the real economic reverberations of the popped equity bubble only just starting to sink in, the Fed seems more than willing to risk inflating another bubble in order to temper the distress. This may sound harsh. But I continue to believe that asset bubbles are to be avoided at all costs and that it is the central bank's responsibility to temper these excesses before they get out of hand. Otherwise,"infectious greed" -- as Greenspan puts it -- takes on a life of its own.
In my opinion, the Fed squandered the opportunity to pop the equity bubble in late 1996 and early 1997. Back then, an"irrationally exuberant" equity bubble was suddenly rationalized by a Fed that embraced the New Economy with open arms. Today's script seems hauntingly familiar. An overly extended housing cycle is now being legitimized as a sustainable source of economic expansion. From bubble to bubble -- there seems to be no stopping the follies and perils of asset- and debt-driven economic growth.
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