A new research paper co-written by the vice chairman of the Federal Reserve says consumer debt has soared over the last six years mainly because of the rapid increase in housing prices, The New York Times reported Monday.
The research suggests that consumer spending may slow down over the next few years.
The paper will be presented this morning by Donald L. Kohn, the second-highest ranking Fed official after Ben Bernanke, during a conference of central bankers in Sydney, Australia. Kohn wrote the paper with a Fed economist, Karen E. Dynan.
Dynan and Kohn said that higher house prices made many homeowners feel wealthier and more willing to take on debt, which they then used to finance spending. This spending has helped to keep the economy growing at a healthy pace since the last recession ended in 2001.
But the increase in debt "is not likely to be repeated," according to an advance copy of the paper, unless home prices rise as rapidly as they have in the recent past and mortgages become even easier for borrowers to obtain.
Home prices are already falling in much of the country, and mortgages have become far harder to get in recent months.
Higher home prices also raised debt in recent years by causing families to take out large mortgages in order to afford the houses they wanted.
In some cases, the authors said, homeowner families might have taken on more debt than was wise, out of a misplaced belief that the rise in prices would continue for years.
Source: Xinhua
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