Subprime, debt seen as biggest US eco threat

Washington, Aug 27: The risk of massive defaults on subprime mortgages and heavy debts now poses a bigger threat to U.S.economic prosperity than terrorism, a panel of U.S. business economists said on Monday.

''The combined threat of subprime loan defaults and excessive indebtedness has supplanted terrorism and the Middle East as the biggest short-term threat to the U.S. economy,'' the National Association for Business Economics said.

The conclusion was based on a survey of 258 NABE members conducted between July 24 and Aug. 14 and updates one done in March.

Only 20 per cent of members said terrorism was now their top concern, compared with 35 per cent in March.

''Meanwhile, 18 per cent of those surveyed pointed to the effects of the subprime debacle as their biggest concern, and the related issue of 'excessive household and/or corporate debt' was cited by another 14 per cent,'' NABE said.

For all the concern about current conditions in mortgage markets, NABE members remained upbeat about the longer-term outlook for the housing sector.

''The five-year housing outlook remains largely positive,'' the survey said. While 42 per cent thought housing prices will be flat over five years, another 41 per cent predicted they will rise compared with only 16 per cent who foresaw a price drop.

A growing number of NABE members now see the U.S. housing boom of the early 2000s, when prices were shooting higher, as a credit-induced bubble. Comparing findings now with two years ago, NABE said 29 per cent of members feel the boom was a ''serious national bubble,'' up from 14 per cent two years ago.

While about 60 per cent of NABE members approved regulators' moves to tighten mortgage lending rules, more than 90 per cent considered they were ''too late'' in doing so.

REUTERS>