Friday, October 14, 2005

U.S. households not overleveraged, says economist Maury Harris

Maury Harris, chief U.S. economist and managing director, UBS Investment Research, staked out positions on five controversial topics as part of his October 14 presentation to the Boston Security Analysts Society. According to one of his slides:
  1. Households are not yet dangerously overleveraged.
  2. The low personal savings rate should not rebound sharply.
  3. Historically high U.S. reliance on foreign financing currently is not necessarily dangerous.
  4. Each US$10 sustained rise in crude oil prices subtracts only around 0.2% per year from real GDP growth in each of the following two years.
  5. National average home prices are unlikely to decline despite some regional weakness.
Because I have a mortgage broker as a client, I was particularly interested in Maury's positions related to real estate. It's true, he said, that debt repayment and financial obligation ratios are near record highs. However, over time, U.S. households have become more prosperous, so they have a greater ability to pay their debts. As a result, mortgage delinquency rates have not trended up.

As for house prices, they're high when compared with income. However, low interest rates have made them affordable. He believes that housing prices aren't overvalued because:
  1. It has taken time for the tax change affecting primary residences to filter into prices.
  2. The more liquid real estate becomes, the more valuable it becomes.
  3. The American public doesn't expect as much out of financial assets as they used to, so they're putting more money into real estate rather than stocks and bonds.



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