Minehan, Cathy

It makes sense to worry about the potential impact on overall GDP growth of a combination of a reduction in housing construction and a decline in household wealth. The Bank's baseline forecast takes what might be seen as a rather conservative perspective here. We see construction diminishing somewhat and real estate prices flattening, not declining, and those assumptions are built into the solid GDP growth rate I referred to earlier. Clearly, however, we could be wrong on the magnitudes. Real estate prices could actually decline (though this has never happened for the nation as a whole at least on a nominal basis) and construction activity could retrench more than we expect. And rising mortgage rates could impede consumption more than our forecast predicts. Thus, changes in residential real estate present a source of downside risk to growth.