Chicago, IL, May 18, 2006--It is "pretty clear" that the U.S. housing market is cooling off but it looks poised for a soft landing given overall strength in the economy, U.S. Federal Reserve Chairman Ben Bernanke said on Thursday.
"In combination with rising interest rates, affordability is becoming much more difficult and therefore as you would expect you are seeing some cooling in those markets," Bernanke said in a question and answer session after speaking to a Chicago Fed conference on banking regulation.
"We're seeing slowing in sales, slowing in starts. There also seem to be signs that prices are not rising as quickly as they have been for the past few years," he said.
"It looks to be a very orderly and moderate kind of cooling at this point," Bernanke said, adding that the U.S. labor market is strong and incomes are rising.
Financial markets view a slowdown in housing demand as a linchpin of Fed policy for the next few months. As the housing market slows, overall U.S. growth should level off as well, setting the stage for the Fed to halt its two-year program of interest rate increases.
Chances for the Fed to raise rates again in June slipped on Thursday to 46 percent from as high as 58 percent on Wednesday.
Bernanke said the central bank does not have the ability to fine tune asset prices or stock prices with monetary policy, but instead is watching the trajectory of the housing slowdown within the context of the overall economy.
The central bank has concerns about the recent proliferation of non-traditional mortgage products such as adjustable-rate and no-money-down loans, Bernanke said. He noted some 30 percent to 40 percent of new mortgages were of the non-traditional type in 2005.
Chicago Fed President Michael Moskow noted in earlier comments that many adjustable rate mortgages will soon need to be re-priced "under less favorable conditions."
