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WASHINGTON – Federal Reserve Board Chairman Alan Greenspan, delivering the Federal Board’s semiannual monetary policy report told Senate Committee on Banking, Housing, and Urban Affairs members that the mortgage lending and housing market will continue to perform strong, but those performances will be influenced and “tempered by other influences.” Speaking before the committee on July 16, the chairman recognized the role monetary policy played in 2001 on cutting short-term interest rates which in turn helped lower household borrowing costs. “Particularly important in buoying spending were the very low levels of mortgage interest rates, which encouraged households to purchase homes, refinance debt and lower debt service burdens, and extract equity from homes to finance expenditures,” Greenspan said. Greenspan predicted that fixed mortgage rates “should continue to fuel reasonably strong housing demand and, through equity extraction, to support consumer spending as well.” Increases in home prices, which he said reflect the “effects on demand of low mortgage rates, immigration, and shortages of buildable land in some areas,” have increased the equity in houses that homeowners can tap into for home equity loans and mortgage refinancing. But going into the rest of 2002, these trends that have allowed the economy to continue to expand, “will be tempered by other influences,” Greenspan cautioned. Since consumer and residential expenditures didn’t decline during the overall downturn in the economy, “there is little pent-up demand to be satisfied.” As a result, it is unlikely there will be a surge in household spending early in economy’s overall recovery. [email protected]

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