Bernanke Predicts ‘Modest’ Growth, Norwalk Officials Agree
DODD-BERNANKE
Norwalk Hour
Anthony Rotunno
Boston University Washington News Service
2/14/07
WASHINGTON, Feb. 14 – Federal Reserve Chairman Ben Bernanke told a Senate committee Wednesday the national economy is facing a period of modest growth in 2007 as it moves out of the “substantial cooling in the housing market” that dramatically ebbed the rapid economic expansion of the past several years.
Norwalk city officials acknowledged the real estate slow down, and said the stabilization of the housing market represents a more normal economic cycle.
“It would be impossible to sustain the curve of the past four years,” Tad Diesel, the City of Norwalk’s director of marketing and business development, said in a telephone interview. “The curve is becoming normal by historic standards, but that probably indicates a more sustainable and predictable housing growth.”
Bernanke said the monthly sales of new and existing homes decreased by about 15 percent between mid-2005 and mid-2006 in his presentation on the country’s economic forecast for 2007 to the Senate Banking, Housing and Urban Affairs Committee.
Sen. Christopher Dodd, D-Conn., chairman of the committee, said the recent usage of subprime mortgages and the depreciation of home values across the country is a concern of many families.
“Several credible reports say that we are facing a tidal wave of defaults and foreclosures, which would strip families of…wealth and economic security,” Dodd said.
In Fairfield County, an increased number of homes for sale has led to a recent slow down in the real estate market, according to Gary Smith, president and CEO of Fairfield County Bank. Smith said in a telephone interview his bank sees fewer home purchases now than in the past few years, but real estate prices have not fallen sharply despite the glut of houses on the market.
“In 2003, 2004 and 2005 you were seeing house prices go up by 10-15 percent a year,” Smith said. “Now we’re seeing the values of homes, in most cases, are remaining flat and, in some cases, they may go down a little.”
Despite the industry slump, Bernanke said the recent flattening out of home sales and increase in mortgage applications are tentative signs the fluctuating housing market is beginning to stabilize.
Diesel said more than 1,000 residential housing units are proposed for construction in Norwalk in the coming months. “Everything we read and study says the market will absorb these,” Diesel said. “The market is remaining strong enough that even projects that were considered for rental might be put on the sales market.”
Bernanke said although signs of stabilization have appeared, spillover effects from the cooling of the housing market may be more severe than anticipated. Smith said because consumers are not seeing “double digit growth in home values,” their spending patterns have become conservative.
“People were using the increased value of their homes to buy more by taking out home equity loans and purchasing consumer goods like new cars or second homes,” Smith said of past consumer spending habits. “I don’t necessarily see less home equity loans being taken out now, but what I do see is a more prudent use of their proceeds.”
A strong local economy and a small supply of available land for building are two reasons why the Fairfield County housing market has remained stable, according to Smith. Diesel said Norwalk’s growing business industry has offset economic strains placed on the city by the real estate slow down.
Bernanke also said the nation’s business sector remains in “excellent financial condition, with strong growth in profits.”
Both General Electric and Virgin Atlantic have expanded their operations in Norwalk. Diesel said these developments have helped the economy by producing “a very high level, high-quality work force.”
“I think there is cause for great and sustainable progress in our marketplace,” Diesel said of the Norwalk economy. “I see no indicators that would change that opinion.”
