Monday, October 22, 2007

Stiglitz Says U.S. Housing Slump Will Stunt Consumer Spending

A slowdown in the U.S. economy may be prolonged as a house-price drop cuts off a source of funding for consumers, said Joseph Stiglitz, a Nobel economics laureate.

``The average price of housing in the U.S. is already falling,'' Stiglitz said in a speech in Tokyo today. ``That will be a big problem for the U.S. and if it is a problem for the U.S., it's going to be a big problem for the global economy.''

A U.S. real-estate recession sparked by defaults on home loans to borrowers with poor credit histories may worsen as stricter lending rules and higher mortgage rates make it more difficult for potential buyers to get financing. A drop in consumer spending in the world's biggest economy may depress demand for exports in countries from China to Germany.

Stiglitz estimates that last year between $850 billion and $950 billion was taken out of the value of homes in mortgage- equity withdrawals, with a ``significant fraction'' translated into consumption and helping to offset the effect of higher oil prices.

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