Economists Differ on Housing 'Bubble'

Three economists at the Urban Land Institute's fall meeting in Los Angeles have weighed in with differing views on whether a housing "bubble" exists in the U.S. economy.Jeremy Rifkin, president of the Foundation on Economic Trends, Washington, said he expects the United States, like the United Kingdom, to see the deflation of a housing bubble that will lead to a "grave situation" and "lots of foreclosures in the next few years." Catherine L. Mann, senior fellow at the Institute for International Economics, Washington, noted that in Japan there was "significant economic distress" after financial markets were exposed to a decline in the value of assets they had lent against. She said she doesn't believe that the U.S. financial system is exposed in a similar manner, mainly because mortgages are securitized in this country. However, she said one effect might be to slow consumer spending. Nariman Behravesh, chief global economist of Global Insight, Lexington, Mass., said he expects some regional markets to see declines, including New England, Washington, D.C., and Florida. If home prices fall 10%, U.S. gross domestic product will slow down, Mr. Behravesh said. This would not lead to a recession unless accompanied by some other adverse event, he said.