MercoPress. South Atlantic News Agency

Sub-prime mortgages default “bigger threat than terrorism”

Carl Tannenbaum, NABE President

The risk of massive defaults on sub-prime mortgages and heavy debts now poses a bigger threat to US economic prosperity than terrorism, a panel of US business economists said Monday.

"The combined threat of sub-prime loan defaults and excessive indebtedness has supplanted terrorism and the Middle East as the biggest short-term threat to the US economy," the National Association for Business Economics said. "Financial market turmoil has shifted the focus away from terrorism and toward sub-prime and other credit problems as the most important near-term threats to the U.S. economy" says Carl Tannenbaum, NABE President and Chief Economist, La Salle Bank/ABN-AMRO. "However, these concerns appear to be somewhat transitory, as the five-year outlook for housing remains positive." The conclusion was based on a survey of 258 NABE members conducted between July 24 and August 14 and updates one done in March. Only 20% of members said terrorism was now their top concern, compared with 35% in March. "Meanwhile, 18% of those surveyed pointed to the effects of the sub-rime debacle as their biggest concern, and the related issue of 'excessive household and/or corporate debt' was cited by another 14%" NABE said. For all the concern about current conditions in mortgage markets, NABE members remained upbeat about the longer-term outlook for the housing sector. "The five-year housing outlook remains largely positive," the survey said. While 42% thought housing prices will be flat over five years, another 41% predicted they will rise compared with only 16% who foresaw a price drop. A growing number of NABE members now see the US housing boom of the early 2000s, when prices were shooting higher, as a credit-induced bubble. Comparing findings now with two years ago, NABE said 29% of members feel the boom was a "serious national bubble", up from 14% two years ago. While about 60% of NABE members approved regulators' moves to tighten mortgage lending rules, more than 90% considered they were "too late" in doing so. As to the most serious long-term challenges facing the U.S. economy are health care costs, cited by 24% of respondents, and an aging population, cited by 21%. These responses were similar to survey rankings from 2005 and 2006. Education and skilled labor rank close behind, with 17% seeing them as the nation's most important long-term challenge.