Foreclosures Show Minimal Effect for Economy - Power Lunch

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Jun.12

2:56 PM ET

Tuesday, 12 Jun 2007

Foreclosures Surge, But Impact on Housing Is Mixed

Posted By:Anita Yadavalli

Topics:Housing

Foreclosures were up 19% in May from April and up almost 90% from May 2006, though First Trust Advisors Chief Economist Brian Wesbury thinks foreclosures won't have much of an effect on the housing market.

He said the peak in the housing market already occurred in the fourth quarter of last year, as there was a 1.2% subtraction from gross domestic product.

"I think the worst is behind us," Wesbury said.

However, RGEMonitor.com chairman Nouriel Roubini thinks the worst is actually ahead of us.

He said that foreclosure is only one channel of four that puts pressure on home prices.

The other three, he mentioned, are the credit crunch subprime that causes demand for new homes to fall, falling of home prices that causes people to sell homes, and maturity of adjustable rate mortgages at higher interest rates, which people won't be able to afford.

Nevertheless, Wesbury thinks that "we can absorb these losses. It's going to be painful, and there's still some losses to come, but it's not the kind of thing that will drag the entire economy down."