The nation’s housing slump has cut U.S. economic growth by a third, but it shouldn’t tip the country into recession, Federal Reserve governor Thomas Hoenig told a Denver audience Tuesday evening.
Had the housing market simply held flat with year-ago levels, the U.S. economy would probably be growing at a 3 percent annual pace versus its current 2 percent pace, said Hoenig, president of the Federal Reserve Bank of Kansas City.
Instead, home sales nationally are down 30 percent year over year, leaving consumers, who continue to outspend their incomes, more vulnerable.
Even business investment appears to be softening as slower economic growth raises uncertainty.
“How these risks play out will define policy decisions going forward,” said Hoenig, who holds a vote on the committee that determines Federal Reserve interest- rate policy.
Hoenig said he had initially thought the housing market would bottom out early this year but now believes it will reach bottom by midyear.
That said, consumer and government spending remain strong, while demand for U.S. exports is on the rise.
Federal Reserve economist C. Alan Garner, speaking before Hoenig, presented data showing that Colorado’s home-price appreciation has lagged national averages since 2001, often by half or more.
That was, in theory, supposed to cushion the state against home-price declines, but it doesn’t appear to be the case in metro Denver. The S&P Case-Shiller home-price index has Denver prices down 1.7 percent in February versus year- earlier prices. Nationally, home prices rose 0.4 percent.
Homebuilders, in particular, are under stress. New-home sales during the first quarter fell 37.4 percent in the metro Denver market from year-earlier levels, according to Hanley Wood, a provider of housing data.
Staff writer Aldo Svaldi can be reached at 303-954-1410 or asvaldi@denverpost.com.
