simmer down in 2003, possibly notably lessening support to household purchases of goods and services. * * * the very large flows of mortgage funds over the past two years have been described by some analysts as possibly symptomatic of an emerging housing bubble, not unlike the stock market bubble whose bursting wreaked considerable distress in recent years. existing home prices ( as measured by the repeat - sales index ) rose by 7 percent during 2002, and by a third during the past four years. such a pace cannot reasonably be expected to be maintained. and recently, price increases have clearly slowed. it is, of course, possible for home prices to fall as they did in a couple of quarters in 1990. but any analogy to stock market pricing behavior and bubbles is a rather large stretch. first, to sell a home, one almost invariably must move out and in the process confront substantial transaction costs in the form of brokerage fees and taxes. these transaction costs greatly discourage the type of buying and selling frenzy that often characterizes bubbles in financial markets. second, there is no national housing market in the united states. local conditions dominate, even though mortgage interest rates are similar throughout the country. home prices in portland, maine, do not arbitrage those in portland, oregon. thus, any bubbles that might emerge would tend to be local, not national, in scope. third, there is little indication of a supply overhang in newly constructed homes. the level of overall new home construction, including manufactured homes, appears to be well supported by steady household formation and not dependent on high and variable replacement needs or second - home demand. census bureau data suggest that one - third to one - half of new household formations in recent years result directly from immigration. in evaluating the possible prevalence of housing price bubbles, it is important to keep in mind that home prices tend to consistently rise relative to the general price level in this country. in fact, over the past half century, the annual pace of home price increases has been approximately 1 percentage point faster on average than the rise in the gdp deflator. this higher home - price inflation rate results from persistently slower productivity growth in new home construction than in the economy overall. this lag in productivity growth drives up new home prices relative to the general price level and, by arbitrage, it drives up the prices of existing homes as well. in addition, local building and land use restrictions continue to constrain the supply of buildable land in

many areas, whose price increases also tend to outstrip the rate of inflation. clearly, after their very substantial run - up in recent years, home prices could recede. a sharp decline, the consequences of a bursting bubble, however, seems most unlikely. nonetheless, even modestly declining home prices would reduce the level of unrealized capital gains and presumably dampen the pace of home equity extraction. home mortgage cash - outs and home equity loan expansion would likely decline in the face of declining home prices. however, the five - year old home building and mortgage finance boom is less likely to be defused by declining home prices than by rising mortgage interest rates. should rates rise, it is entirely possible that new and existing home sales would decline, leading to a lower level of realized capital gains on homes, a further narrowed refinance spread and, as a consequence, less overall home equity extraction. it is worth bearing in mind, however, that any sustained increase in rates presumably would occur only in the context of a more vigorous upturn in the pace of business activity, suggesting that the net effect on housing activity might be relatively limited. * * * most of the aforementioned data are new and derive from a much broader home mortgage data system in the early stages of development by the federal reserve board. as a consequence, all specific numbers i have cited this morning are preliminary and subject to revision. the evident increasing importance of tracking these very large flows of housing - related credits that have become so prominent in the past decade or two has led the federal reserve board into a major statistical program to fill a notable gap in currently available data. the board has for years estimated outstanding home mortgage debt and published these estimates in our flow of funds accounts. we publish quarterly estimates of the stock of one - to four - family home mortgage debt as compiled from the vast majority of institutions that originate or hold home mortgage loans. these quarterly estimates of the levels of mortgage debt, however, do not allow us to monitor important flows such as refinancings, cash outs, and repayments. that shortfall needed to be remedied. the availability of considerable detail on the vast majority of originations required by the home mortgage disclosure act ( hmda ) was a catalyst of this new project. our latest tabulation of hmda data, for the year 2001, provided detailed characteristics on almost 13 million mortgages with dates of application and origination. this unique body of data enables us to create weekly, monthly,