Variables key to recession rearing its head, economist say
By BRYAN F. YURCAN

If Las Vegas took bets on such things, David A. Wyss, chief economist at Standard & Poor’s, would make the odds at 3-to-2 against that a recession is in the near future.

Wyss spoke last week before members of the Business Council of Westchester as part of the council’s Key Bank speaker series.

Wyss said housing has really been “the only major weakness” in the economy recently, with the rest of the economy growing at a 3 percent rate.

“If housing had even remained flat, we would be growing,” he said.

However, he said any number of other factors, including the rising price of oil, could make matters much worse.

“We could see the consumer getting squeezed. There could be a recession if some other things happen.”

He said when housing prices went to record highs earlier this decade, interest rates were cheap and homeowners’ monthly payments were low.

As interest rates rose, mortgages went to levels many people couldn’t afford,

“Something that was affordable at a one percent interest rate is not affordable at five percent,” he said. “People’s mortgages became more expensive than the house.”

Wyss said that the domestic media focuses only on the housing problems in the United States, but in reality much of the rest of the industrial world has experienced a housing bubble.

“It’s all driven by the same thing: low interest rates.”

In Japan, for example, their housing bubble was in the early 1990s when the Bank of Japan had set interest rates near zero percent.

By 1997, when the country’s housing market was in its “bust phase,” home prices were 25 percent lower than at its peak.

While things are not that bad here, Wyss warned that Japan’s case proved, “You can have home prices drop for a long period of time in a major industrial economy.”

Wyss said the big problem is houses that were bought or refinanced at the peak of the bubble.

Most that fall into this category have not been defaulted on yet, but that could soon change.

Wyss predicted that the Federal Reserve will cut interest rates “at least one or two more times” in the near future, with the next cut probably coming in January.

“Because they see weak data coming in, people get scared,” he said.

Wyss said the commercial real estate market is showing “a lot more strength” but that contracts are beginning to level off.

In addition to his work at Standard & Poor’s, Wyss serves on the board of the National Association for Business Economics. The event was held at Abigail Kirsch at Tappan Hill in Tarrytown.

 

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