Ferguson, Roger

House prices have risen to levels that, in some areas of the country, seem high relative to the economic fundamentals. The market for second homes seems especially strong, raising the fear that some homeowners are speculating on further increases in home prices. The greater use of innovative forms of mortgage finance adds to the concern that the residential real estate market may well be vulnerable to a flattening of home prices, and in certain markets, perhaps a decline. I do not think that a significant and widespread drop in home prices is the most likely outcome, but the situation will require careful monitoring in the months ahead.