To be candid, however, the behavior of the housing market and the response of spending are among the great uncertainties about the economic outlook. I have sketched a benign scenario of gradual adjustment that lines up very nicely with the Federal Reserve's assessment that overall growth should slow to a sustainable pace.
But our ability to predict asset prices is very limited, especially when the trajectory of those prices is shifting, as that of house prices appears to be doing right now. Moreover, we have particular difficulty in assessing how consumers will respond to changes in their perceptions of future capital gains and actual home prices.