Housing starts plunged 8.5 percent in June and mortgage interest rates have been at 6 percent or higher since late April, but there's still no place like the home market.

Further deflating real estate market bubble speculation -- at least in the short term -- Federal Reserve Chairman Alan Greenspan said July 20 in testimony before the Senate Banking, Housing, and Urban Affairs Committee that there are no indications of any abrupt or significant about-face in the housing market.

"In short, financial markets, along with households and businesses, seem to be reasonably well prepared to cope with a transition to a more neutral stance of monetary policy," Greenspan testified.

In a relatively rosy picture painted of a slowly growing economy, Greenspan said labor market improvements thus far and those expected in the near future would help offset slowed retail spending. Higher energy costs got the blame for consumers holding onto more of their home-related wealth.

"...Inflation also seems to have been boosted by transitory factors such as the surge in energy prices. Those higher prices, by eroding households' disposable income, have accounted for at least some of the observed softness in consumer spending of late, a softness which should prove short-lived," he said.

That's because record-low interest rates in recent years have allowed consumers to reduce their financial obligations by funding long-term debt with cheaper mortgage-based financing. Interest rates remain relatively low and continue to give consumers a home-buying edge. The appreciation that comes with home buying, in turn, should help boost consumer spending, Greenspan testified.

"Between mid-2002 and mid-2003, homeowners were able to refinance at lower interest rates almost half of total outstanding home mortgage debt...Although mortgage rates are up from recent lows, they remain quite attractive from a longer-run perspective and are providing solid support to home sales. Despite the softness of recent retail sales, the combination of higher current and anticipated future income, strengthened balance sheets, and still-low interest rates bodes well for consumer spending," Greenspan said. It was his first Monetary Policy and Economic Outlook Report to the Congress-related testimony since before June 30.

On June 20, federal monetary officials raised two benchmark interest rates -- the federal funds rate and the discount rate -- both 25 basis points.

The increase was the first time in four years the Federal Reserve's Federal Open Market Committee raised interest rates.

In anticipation of FOMC's move, fixed interest rates on 30-year conforming loans rose from the year's low of 5.38 percent in March to a high of 6.32 percent by June 17. By July 15 rates had fallen back to 6 percent, according to Freddie Mac's Weekly Mortgage Market Survey.

Greenspan also reiterated previous comments about how the favorable levels of fixed-rate mortgages would help prevent widespread household budget busting should interest rates continue to rise.

"Lastly, very large fractions of the total outstanding obligations of businesses and households are long-term, fixed-rate debt. As a result, rising market interest rates will not have much immediate direct effect on business and household debt service burdens," Greenspan testified.

The full report called the housing market "torrid" in the first half of 2004 with sales of both new and existing homes "exceptionally strong, and they hit record highs in May."

The report also pointed to strong economic foundation-building strength in home price appreciation -- up nearly eight percent -- outstripping gains in incomes and rents in recent years. There's also an indication home-related wealth continues to improve the financial well-being of households as delinquencies on credit card and auto loans generally declined in the first three months of the year. Bankruptcy rates, while still high, stepped down in the first quarter from their recent peak.

In his testimony Greenspan offered only a few words of caution, including some for the housing sector.

"...Despite the lock-in of low interest rate costs on a substantial share of household and business liabilities, recent higher market interest rates will, in time, show through into increased charges against household and business income," he said.