The Bush administration is closely watching the housing boom, though so far the surge appears to be driven mostly by basic market forces and not speculation that could lead to instability, Ben Bernanke, the president's top economist, said Tuesday.
Federal Reserve Chairman Alan Greenspan and some private economists have raised concerns that the market may be getting too hot.
Speculative buying and selling seem to be cropping up in some areas, but other forces also are feeding the hot market and the surge in house prices, Bernanke suggested.
"While speculative behavior appears to be surfacing in some local markets, strong economic fundamentals are contributing importantly to the housing boom," said Bernanke in his first speech as the new chairman of the White House's Council of Economic Advisers.
Those fundamentals, he said, include low mortgage rates, rising employment and incomes, a growing population and a limited supply of homes or land in some areas.
"For example, states exhibiting higher rates of job growth also tend to have experienced greater appreciation in house prices," said Bernanke, a member of the Federal Reserve Board before assuming his new post in late June.
Greenspan has said there are signs of "froth" in some local markets where house prices seem to have risen to "unsustainable levels." It doesn't appear likely, however, that a national housing bubble, which could pop and send prices tumbling, will develop, the Fed chief has said.
Greenspan also has raised concern that the froth in housing may have spilled over into mortgage markets with the rise of risky interest-only mortgages and the introduction of relatively exotic forms of adjustable-rate mortgages.
"The administration will continue to monitor" developments in the housing market, Bernanke said. "However, our best defenses against potential problems in housing markets are vigilant lenders and banking regulators, together with perspective and good sense on the part of borrowers."
Bernanke's comments on housing were contained in a broader speech delivered to the American Enterprise Institute on the need for Americans to gain economic security in a fast-changing, competitive global marketplace.
He highlighted the importance of workers refreshing job skills to remain competitive and emphasized the importance of improving education, especially in math and sciences. He also stressed the need for Americans to gain more control over their economic security — themes consistent with the Bush administration's message.
Bernanke, 51, is frequently mentioned as a possible successor to Greenspan, who is expected to step down early next year. Before going to work at the Fed, Bernanke was a professor at Princeton University and chairman of the economics department.