ICS Magazine

Dollar Shrugs Off Overvalued U.S. Housing

August 26, 2004
NEW YORK (Reuters) - The dollar so far has brushed off signs the U.S. property market could be overheating as house prices keep rising quickly and consumer demand stays robust.

Economists and currency strategists say that despite escalating housing costs, the U.S. property sector remains stable and poses little risk to inflation. That should give the U.S. economy and the dollar breathing room -- for now.

The dollar stayed on familiar ground against the euro and Japan's yen after data on Wednesday showed mortgage rates rose slightly in the latest week and July U.S. sales of new homes fell to the slowest pace since December. The dollar rose to 110.17 yen, while it dipped against the euro, which traded around $1.2091, still in ranges it's trod since late May.

Federal Reserve Chairman Alan Greenspan told the Senate Banking Committee, in a letter made public on Tuesday, that U.S. housing prices in some areas have outstripped growth in incomes and rents. Greenspan's statement was included in written responses to questions submitted to Greenspan on July 20 before the Senate Banking Committee.

Greenspan cautioned that, after a period of very low mortgage rates, it was hard to get a clear measure of increases in home prices, but added that "we monitor real estate prices closely in developing our economic outlook."

The Fed's policy-makers raised the fed funds rate to 1.5 percent on Aug. 10 -- its second tightening of credit this summer. On June 30, the Fed raised rates for the first time in four years. Previously, the fed funds rate was 1 percent, its lowest since 1958.