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US recession in 2007: Soros - decline in Mortgages Applications

By Unregistered Visitors, Section Real Estate
Posted on Sun Feb 05, 2006 at 10:25:14 PM EST

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Posted online: Monday, January 09, 2006 at 1448 hours IST
JANUARY 9: Billionaire investor George Soros indicated the US economy may fall into recession next year because of a cooling housing market. There is also a "reasonably significant chance of a global slowdown in 2007,'' he said.
Soros, 75, said in Singapore today. ``Right now, the markets are as good as you could ask for.'' The potential for an end to a five-year boom in US home prices has raised concerns the world's biggest economy may slow or even fall into recession, triggering a slump in other economies. The number of mortgage applications filed in the last week of 2005 fell to the lowest since 2002, according to the Mortgage Bankers Association. "Economic growth will be tempered by a softer housing market," David Heike, Lehman's chief US credit strategist, said last week. A slowing housing market may trim the economy's growth rate between 0.5 per cent and 1 per cent, Lehman estimated. The Fed will likely try to manage a soft landing for the economy, though if the housing market continues to cool "the soft landing will turn into a hard landing,'' Soros said. "That's why I expect the recession to occur 2007, not 2006."The US economy's growth is forecast to slow to 3.5 per cent this year from 3.6 per cent last year and 4.2 per cent in 2004, the Paris-based Organization for Economic Cooperation and Development said in a Nov. 29 report.
`Hard Landing'

Whether the US avoids a recession depends on when the US Federal Reserve, which last month raised the country's main interest rate for the 13th time in a row, ends its rate increases, Soros said. There are risks they may raise rates more than needed to slow growth and curb inflation. "Almost inevitably, they have got to overshoot because they can't stop (raising interest rates) until the economy shows signs of a slowdown,'' Soros said today at an event organized by theSingapore Institute of International Affairs. "By the time it shows those signs it may be a little too late. I happen to be on the pessimistic side." US Federal Reserve economists in their staff forecast for the Dec. 13 meeting of the Federal Open Market Committee ``suggested that growth of economic activity would slow'' from the 2005 pace, ``but remain solid, with output staying near the economy's potential over the next two years,'' according to minutes of the meeting released Jan. 3.Still, since the Fed's last meeting, government data showed the US economy grew 3.6 per cent in the three months ended September from a year earlier, matching the pace of the previous two quarters.
The growth pace reported in the last three quarters was the slowest since the third quarter of 2003, when the economy expanded 3.2 per cent.

Last year, inflation in many economies accelerated, while growth slowed, as energy prices surged to record levels. In the US, the boom in housing prices helped mitigate the effect, Soros said. It almost ``exactly outweighed the negative effect of the higher price of oil,'' he said. ``Going forward, the tight market will continue unless the economies slow down, and a fall in oil prices will actually be one of the factors that will help bring about a soft landing. ''Soros, who said he is ``no longer actively involved in the markets,'' declined to comment on specific markets or currencies. He also declined to comment on a report that Viacom Inc.'s Paramount Pictures is in talks to sell the DreamWorks movie library to Soros's private-equity fund. Viacom is in talks in a bid to help pay for its acquisition of DreamsWorks SKG, the Wall Street Journal reported earlier today, citing people familiar with the situation. ParamountPictures last month agreed to buy DreamWorks SKG for $774 million.
Indonesia
Soros was in Singapore following a visit to Indonesia, which suffered more from the effect of the 1997-1998 Asian financialcrisis than other Asian nations. The crisis led to the ouster of former dictator Suharto, though the country has reaped praise fora relatively peaceful transition to democracy that culminated in the election of Bambang Susilo Yudhoyono as the country's first directly elected president in 2004. "I am actually more positive by political developments in Indonesia than the people in Indonesia,'' he said. ``I hope it's strong enough so that the window doesn't close and that people won't return to the autocratic regime.'' Soros has been supporting a foundation aimed at improving democratic development in Indonesia. ``Asia is the most dynamic part of the global economy,'' he said. ``Since America is losing its legitimacy as the leader of the world, there will be increasing discussions for Asian cooperation.''
Soros left Hungary for England in 1947 and moved to the US in 1956 to start his investment fund. He is chairman and president of the Soros Fund Management. After the communist regime collapsed in Hungary in 1989,Soros founded Central European University in Budapest, a post-graduate institution for courses in democracy, human rights and social sciences.

Source: http://www.financialexpress.com/latest_full_story.php?content_id=113977

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