Mrs. Yellen: "... ich sehe blühende landschaften"
Housing slowdown creating 'ghost towns'
Fed president says some effects of rate hikes still in the pipeline
By Alistair Barr, MarketWatch
Last Update: 6:20 PM ET Oct 16, 2006
SAN FRANCISCO (MarketWatch) -- The housing slowdown has turned some parts of the Phoenix and Las Vegas metropolitan areas into "ghost towns," where many unsold homes stand empty, Janet Yellen, president of the San Francisco Federal Reserve Bank, said Monday.
Yellen said that she heard the ominous description from a "major home builder," who told her that the share of unsold homes in some subdivisions around the two Southwestern cities has topped 80%.
"Though the situation isn't that bad everywhere, a significant buildup of home inventory implies that permits and (housing) starts may continue to fall, and the market may not recover for several years," she warned, according to the text of a speech delivered Monday at the Hong Kong Association of Northern California in San Francisco.
The housing slowdown was one of several factors Yellen cited in which she argued that the current level of interest rates is "moderately restrictive," and that it makes sense to keep it that way "for a time."
Nationally, inventories of unsold homes have climbed as housing became less affordable, Yellen said in a meeting with reporters after her speech.
Speculation had been quite high in areas such as Phoenix and Las Vegas and now that prices may not be heading higher anymore, those speculators seem to be dumping inventory on the market, she added.
"The market (in these regions) has seized up to some extent and inventories are building," she said.
Yellen's speech was nearly identical to one she gave a week ago.
Yellen is a voter this year on the Federal Open Market Committee, which sets U.S. monetary policy. The FOMC will meet next Tuesday and Wednesday, with most observers expecting a vote to keep overnight interest rates steady at 5.25%.
"Holding the stance of policy steady for a time makes sense to me," Yellen said Monday. "We have yet to see the full effects of the series of 17 federal funds rate increases -- some are probably still in the pipeline," the Fed president added.
"I believe policy may now be well-positioned," Yellen said.
Inflationary pressures are likely to subside, she said.
"The economy appears to have entered a period of below-trend growth," Yellen said. "If this continues for a time, as I think is likely, the tightness we have seen in labor and product markets would ease somewhat, tending gradually to reverse any underlying inflationary pressures."
She didn't express any desire to cut rates yet. "The inflation outlook remains highly uncertain, and until we actually see inflation begin to slow down, I will be focused on the upside risks in the outlook," she concluded.
Alistair Barr is a reporter for MarketWatch in San Francisco.
http://www.marketwatch.com/News/Story/Story.aspx?dist=newsfi…