Decades-low mortgage rates stoked home sales and home-mortgage refinancing to record highs last year. Given the stock market turbulence and the sagging economy, owning a home has become an especially attractive investment for consumers.
As consumers swap higher-interest rate home loans for lower-interest rate ones, the extra cash has helped to support consumer spending, one of few sources of strength for the economy.
Rising home values also have made homeowners feel better about their balance sheets during these muddled economic times, another factor that has supported consumer spending.
Greenspan noted that the brisk pace of home price increases is slowing and that refinancings are off their peak.
"The frenetic pace of home equity extraction last year is likely to appreciably simmer down in 2003, possibly notably lessening support to household purchases of goods and services," Greenspan said in a speech delivered via a satellite video link to the Independent Community Bankers of America meeting in Orlando, Fla.
A copy of his speech was distributed in Washington.
Even as home price increases slow, the housing market is in fine shape, Greenspan said, adding that he is not overly worried about a dramatic or disruptive drop in housing prices.
"It is, of course, possible for home prices to fall as they did in a couple of quarters of 1990," Greenspan acknowledged. "But any analogy to stock market pricing behavior and bubbles is a rather large stretch."
In the housing market, local conditions dominate, strongly influencing home prices and to a lesser extent home mortgage rates.
"Thus, any bubbles that might emerge would tend to be local, not national, in scope," Greenspan said.
Greenspan did not not discuss the future course of interest rate policy in either his prepared remarks or in a question-and-answer period after his speech.
The Federal Reserve meets next on March 18 and analysts expect policy-makers will leave rates at a 41-year low of 1.25 percent. The hope: such super-low rates would motivate consumers and businesses to spend and invest more, boosting economic growth.
Recent economic reports suggest that businesses and consumers are turning more cautious amid worries about a war with Iraq, the turbulent stock market and rising energy prices.