New Jersey Real Estate Digest: Economic Growth Expected to Soften

Wednesday, August 30, 2006

Economic Growth Expected to Soften

Reuters reports on a Federal Reserve study that says it was technology and not speculation that drove the housing boom. The study debunks the bubble theory but the market is still deflating much like a balloon or tire with a leak. The study also said much of the economic expansion this period was driven by equity from rising home values. Economic growth could slow when these gains dwindle.

"The wealth effect is fading and the economy is slowing," said Elisabeth Denison, economist at Dresdner Kleinwort Wasserstein.

John Fisher and Saad Quayyum, economists at the Chicago Fed and authors of the report do not expect growth will soften too far below its long-term trend.