STEVE INSKEEP, host:
So as you may have noticed, if you check the real estate listings, the housing market is slipping in many parts of the country. And this is the development that many economists feared. They feared it because it could cause a recession.
To find out if that's really happening we turn to David Wessel. He's Deputy Washington Bureau Chief for the Wall Street Journal and a regular guest here.
David, good morning.
Mr. DAVID WESSEL (Deputy Washington Bureau Chief, Wall Street Journal): Good morning.
INSKEEP: Okay, the housing market is not doing very well. How bad is bad?
Mr. WESSEL: Well, in August there were 20 percent fewer new homes started than in August a year ago. The median price of an existing house has, by a measure that the National Association of Realtors keep, says that the typical house is going for 2 percent less than a year ago - which is a whole lot different then a market where prices were going up 10, 12, 15 percent a year.
INSKEEP: Why would that scare people about the overall economy?
Mr. WESSEL: Well, a couple of reasons. One is, home building is a big industry, and there are fewer people working in it. But the main one is that consumer spending is a major driver of the U.S., and indeed, the global economy. And the fear has been that when housing prices come down people will stop spending. They'll stop using their house like an ATM.
INSKEEP: This is the cliché, that people have been borrowing against their homes and then spending it on cars, or trips, or any number of other things.
Mr. WESSEL: Correct. Correct.
INSKEEP: Okay. So now the market is going down. People don't have quite as much money they can borrow. What's happening?
Mr. WESSEL: Well, the economy is definitely slowing. Ben Bernanke, the Fed Chairman, said the other day that the weak housing market will shave a full percentage point off the annual growth rate in the second half of the year.
But it's interesting that the forecasters - who are sometimes right and sometimes not - are beginning to talk about all the other good things that are going on in the economy that may prevent us from being driven into a housing recession.
INSKEEP: Like what?
Mr. WESSEL: Well, the biggest one is that energy prices are coming down. Oil is $15 a barrel less than it was at the peak. The sharp drop in the prices of gasoline and natural gas have freed up about $90 billion, at an annual rate of spending that consumers can use on other things. The second thing is that U.S. exports are starting to turn up, because other parts of the world are picking up a little momentum as we lose it.
And finally, people are now convinced that the Fed is not going to raise interest rates any further anytime soon. That has kept long-term interest rates - which are really important to the economy - down, and that's also helping to stimulate things to offset the weakness driven by housing.
INSKEEP: So have consumers gone right on coming up with money to spend?
Mr. WESSEL: Pretty much. One thing that's clear is that every time forecasters say the American consumer is just about spent out, the American consumer proves the forecasters wrong.
INSKEEP: You know, it is interesting, though, David, I wonder about the psychological effect, entirely aside from the practical effect of whether you have money to borrow. When my house value goes up, I feel more affluent. When my house value goes down, I feel a little less secure.
Mr. WESSEL: There is no doubt that a collapsing housing market is bad for the economy, bad for consumer spending, and bad for public attitudes. The question is, how bad is the housing market going to be? How much will that effect consumer spending, and what other good things will go on in the economy that'll offset that weakness? And it's those other good things that seem to be buoying the forecasters right now.
INSKEEP: David, thanks for the explanation.
Mr. WESSEL: A pleasure.
INSKEEP: David Wessel, of the Wall Street Journal.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.