Friday, April 07, 2006

White House Sees Slow Fall For Home Sales

The high-flying housing market should make a safe landing by gradually losing altitude, the White House suggested Monday, Feb 13, 2006.

Housing has been an important source of power for the economy as home sales hit record highs in the past five years running. Low mortgage rates were a factor behind brisk housing activity.

"A gradual slowing of homebuilding appears more likely than a sharp drop because the elevated level of house prices will sustain homebuilding as a profitable enterprise for some time," according to President Bush's annual economic report to Congress.

The direction of the housing market is being closely watched. Most private analysts also are expecting gradual moderation. If the housing market were to collapse, it would pose grave dangers to the country's overall economic health.

House prices, which have risen rapidly in value, also will probably see slower growth this year, Matthew Slaughter, a member of the White House's Council of Economic Advisers, said during a briefing on the report.

Even with a housing slowdown, the economy is expected to log respectable economic growth this year, according to the White House's projections.

The president's report projects that the economy will grow by 3.4 percent as measured from the fourth quarter of last year to the fourth quarter of this year. In 2007, the economy should register another solid year, growing by 3.3 percent, the report said.

The president's report examines economic conditions as well as challenges. These include rising health care costs, the massive strain on federal resources that will come from the looming retirement of millions of baby boomers, and bloated trade and budget deficits.

Democrats contend the administration is short on answers. The report "reveals little about how the president's policies would actually help average families or bring down the deficit," said Sen. Jack Reed, D-R.I.

In other matters, the report said:

_The decline in Americans' personal savings rate "may not be cause for much alarm for retirement preparedness." The personal savings rate last year dropped to its lowest point since the Great Depression. The savings-rate measure doesn't provide a complete picture of households' finances because it does not capture gains from such things as higher real-estate values or financial investments, the White House report and private analysts say.

• Limiting the massive portfolio holdings of mortgage giants Fannie Mae and Freddie Mac would decrease "the likelihood of systemic problems with little adverse impact on the liquidity of the market." Proposals before Congress would curb the mortgage giants' holdings.

Looking back at last year, Bush marveled at the economy's sturdiness after being jolted by the devastating Gulf Coast hurricanes and high energy prices. "The United States economy continues to demonstrate remarkable resilience, flexibility and growth," the report said.

The unemployment rate, which averaged 5.1 percent in 2005, should dip to 5 percent this year and hold steady at that rate next year, the White House forecast.

Inflation, as measured by the Consumer Price Index, also should moderate this year. Consumers prices, which rose by 3.4 percent in 2005 — the most in five years_ are expected to go up by no more than 2.4 percent this year and next year, the report said.

Addressing the government's balance sheets, Bush said the administration remains on track to cut the federal budget deficit in half by 2009. The president, who is urging Congress to make his tax cuts permanent, would seek to slash the deficit by cutting spending.

The government ran up a $319 billion budget deficit last year. The administration is estimating the deficit for this year to hit a record in dollar terms of $423 billion, surpassing the record set in 2004. The worsening picture reflects increased spending for hurricane relief and the costs of the wars in Iraq and Afghanistan, the administration says.

The president's report also said he would continue to push for trade deals that would make it easier for U.S. companies to sell their goods in global markets.

The U.S. trade deficit soared to $725.8 billion last year, the fourth year in a row the deficit hit a record high. The country's trade shortfall with China last year came to $201.6 billion, the highest deficit ever recorded with any single country. The report urged China to move ahead on a more flexible currency policy.

Democrats, unions and other critics blame Bush's free-trade policies for the loss of U.S. jobs, especially in the manufacturing sector.


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