NYT: Greenspan Is Concerned About 'Froth' in Housing

[DeepModem Mom]

Greenspan Is Concerned About 'Froth' in Housing
By EDMUND L. ANDREWS
Published: May 21, 2005


WASHINGTON, May 20 - Alan Greenspan, chairman of the Federal Reserve, suggested on Friday that the red-hot housing market is becoming a little too exuberant for its own good.

"Without calling the overall national issue a bubble, it's pretty clear that it's an unsustainable underlying pattern," Mr. Greenspan told the Economic Club of New York at the Hilton New York hotel in Midtown.

Mr. Greenspan emphasized that he sees no sign of a nationwide housing bubble, but he acknowledged concerns over "froth" in the market and pointed to a big increase in speculation in homes - particularly in second homes. As a result, he said, there are "a lot of local bubbles" around the country.

The comments of the Fed chairman were the closest he has come to acknowledging the possibility that housing prices may be poised for a fall in some parts of the country.

The issue is sensitive for the Federal Reserve, because its policy of keeping interest rates low has helped propel housing prices upward even when the rest of the economy was dragging....


http://www.nytimes.com/2005/05/21/business/21fed.html

[BlueManDude]

1. I'm concerned bout the froth that come out of Greenspan's mouth

the same moron who told everyone that adjustable rate morts were the way to go when interest rates have no where to go but up.

he can't be retired soon enuf.

[Psephos]

3. BlueManDude - a question

Specifically, what would you do differently?

I'm interested in your perspective (and that of anyone else who wants to chime in).

Peace.

[BlueManDude]

13. lock in 30 year rate and forget about it.

30 yr rates are still historically low. mort brokers and the like are using all kinds of enticing arm deals (and there usually are limits to how far your mort rate can climb) but imo given the uncertainty in our economy and the incompetents that are running it - why even worry about it.

a 30 yr fixed in the 6% range is still quite good and you can refi later if rates take a tumble.

[Psephos]

14. I'm with you there. I like what Necso, SWFLDem, and Voltaire said, too.

It seems to me the housing bubble is being driven by greed-fueled demand, just as the tech stock bubble was six years ago. People are buying as much house as the bank will allow because they want as much appreciation and profit as possible.

Loose credit has meant a lot of people have gotten mortgages that they will not be able to service if there are any perturbations in the market. The exact same forces that have driven prices up will serve to drive them down, as waves of defaults make it a buyers' market, not a sellers'. Anyone with cash will have a windfall, but of course, cash will be a rare commodity when a trillion dollars or more of equity evaporates out of the economy.

I remember Houston in the early 1980s, after the regional real estate boom blew up with the drop in oil prices. Huge, luxo condos could be had for 50 grand.

Peace.

[eek]

6. I'd be concerned about santorum too!

google "santorum"

[chicagojoe]

11. santorum is a frothy mixture indeed.

[autorank]

2. He did it to Tech, he'll do it to Housing.

The man is a nihilist. The only time the Fed looked good was when Rubin was telling him what to do from '93 until '98. The man is an idiot. Look at Bush I and all Greenspan's moves, they were a disaster. Look at post-Rubin Fed moves, not too good. But he did kill the Tech boom. Thanks Greenspan you 'political hack.' Watch out housing! If I were a real estate executive or major shareholder, I'd be on the phone to my Senator or * boy so quick it would make your head spin. Let's hope they do it.

Thanks for nothing Alan!

On Edit: Why does Greenspan hate America?

[SW FL Dem]

7. I respectfully disagree

The housing boom has been nuts for years now. My house has doubled in value in less than 4 years ( $350K to $700K). This growth can't be sustained unless there is a corresponding increase in income. The people who are buying these overpriced houses are relying on short term low interest, or interest only mortgages. What is going to happen when the interest rates increase? People who stretched themselves to buy a year or two ago are now facing higher gas prices, higher interest rates, higher property taxes, higher heating and cooing costs and their wages are not rising fast enough to deal with the changes. Greenspan is telling the truth. You just need to open your eyes and talk to your neighbors to realize it.

[autorank]

9. We don't disagree.

I'm in the DC burbs. Talk about overpriced. We just laugh at the sales prices of homes near us. What I was getting at is this: Tech needed to slow down, not crash. Greenspan mouthed off big time and helped it crash. Housing needs to slow down also. A crash does no one any good, especially the people on those 5 year, interest only mortgages (what a nightmare). Greenspan's record sucks unless Rubin is there. Remember 1988-1992. He made about 30 adjustments to this and that and it all came to naught. He was inept then, he is now. It's like taking a trans Atlantic flight and finding out in the middle that your pilot is drunk.

[Voltaire99]

10. Good points. And then there are those locked out of housing entirely...

...due to greedy speculation.

When this one bursts, there'll be a lot of pain. But happen it shall, and happen it must.

[necso]

4. Well, I sincerely hope that the Chairman

realizes that raising interest rates is not the solution to this problem -- the solution is to tighten up requirements for (real estate, anyway) loans. This will slow down refinancing and sales (having a moderating effect on prices), without increasing the burden on all those who are directly effected by interest rates.

And as long as we can continue to sell government securities, there is no need (regardless of what the textbooks say) to raise interest rates either.

We need a cooling-off period before we can take the shock of cold water remedies.

[progressivebydesign]

5. Greenspan is a self-serving Casandra.

He knows full well that his position requires him to refrain from these destructive musings. He is the worst Chairman we have every had. Worst. He thinks that raising the freakin' interest rates is going to help the so-called bubble? OR does he think that by saying that, he's covering his ass when the market dries up because of HIS need to raise rates for his filthy CREDIT CARD and CREDIT industry pals???

Anyone think of that? WHO really benefits from higher interest rates, when there is NO reason to raise them. Beyond Oil there is not reason to scream inflation. There is no housing bubble.. that's BS meant to cover his ass for single-handedly (okay along with the oil industry) destroying the housing market for THEIR profit.

[union_maid]

12. There are bubbles

Greenspan is exactly right in his observations. He's just real late. The bubbles have been happening for years now. In the areas where there is one, it might be great for speculators, but people are being squeezed out of areas on a daily basis. I'm sitting in a house that's making our family relatively rich on paper, since for various reasons I can't cash in and get the hell out of Dodge, I'd trade that for reasonable housing prices for everyone in the area in a minute. Where I live the only new housing being built are McMansions and "luxury" apartments - which are rentals going for $2000 a month and up. Builders say it doesn't pay them to build more modest homes so they don't. A little nothing of a house goes for $400,000. That's a bubble. And it's bad for the quality of life longterm. Normal people with normal jobs either can't stay here or they pay way too much of their income for housing.

If this bubble bursts a lot of people are going to get hurt. If it doesn't, a lot of people are already being hurt and that'll continue.

[dcfirefighter]

8. He could

tighten the money supply (which needs to be done) by raising the reserve requirement of banks, while leaving interest rates alone.