Despite year end problems, including Wednesday's bankruptcy of the Conseco insurance company, the U.S. government-backed agency that supports home ownership in America is optimistic about 2003. Fannie Mae, the world's largest non-bank financial services company, foresees accelerating strength in the U.S. economy.
Fannie Mae chief economist David Berson believes interest rates will rise modestly over the next year. But he sees economic growth picking up to at least a three percent pace. Currently interest rates are at a 40-year low as the central bank has made borrowing cheaper to forestall a renewed downturn.
Mr. Berson said his optimistic forecast is tempered by three uncertainties that impact the economy. "First, concerns about Iraq and a possible war with Iraq. Secondly, concerns about terrorism, and third, concerns about corporate misbehavior," he explained.
It is widely thought that a war in Iraq lasting more than a few weeks would send oil prices sharply higher, something that if sustained could pull the global economy into recession.
Mr. Berson, whose job involves close scrutiny of the housing market, dismisses the assertion that fast rising home prices in the United States represent a bubble that like high technology share prices three years ago could burst.
"There is very little evidence today, at least nationally, of a bubble in home prices," Mr. Berson said. "So while the recent gains may be unsustainable, there is very little evidence to suggest that nationally or even in widespread parts of the country we're going to see anything close to home price declines."
According to Mr. Berson, home prices nationally will rise four to five percent in 2003 compared to seven percent gains this year.