CHICAGO -- Aug. 22, 2006 -- A study by the Federal Reserve Bank of Chicago attributes gains in the housing market over the past five years to innovative mortgages and increased wealth -- not to the speculative building or lax monetary policy associated with housing bubbles.
Chicago Fed economist Jonas Fisher notes, "No doubt housing will be having a slowing effect on the economy, but it shouldn't be a dramatic falloff."
Neither Fisher nor co-author and economist Saad Quayyum believes that record-high home prices are a cause for concern, considering that the recent housing boom was based on fundamentals.
The report shows that the drop in the federal-funds rate to 1 percent in 2003 from 6.5 percent in 2001 did not contribute to the jump in construction during the last three years, which instead was influenced by technology purchases and subsequent increases in productivity.
Source: Philadelphia Inquirer (08/22/06) Torres, Carlos
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