FDIC: Housing Bubble May Stagnate

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The current boom in home prices is more likely to lead to several years of little or no price appreciation than to sudden plunging prices, The American Banker said citing the FDIC.

According to a study by the Federal Deposit Insurance Corporation, of 54 housing price boom episodes before 1998, prices stagnated rather than busting after booms.

"Home price declines do not occur simply because home prices have boomed," said Richard Brown, the FDIC's chief economist, in an interview with The American Banker.

He said that the likelihood of busts depend mainly on local economic conditions such as when a big employer in an area faces financial difficulties, he said.

Despite the historical data, the increase in recent years of "subprime mortgage credits" may make some of these borrowers more susceptible to economic shocks and this could affect default rates, he said.

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