Greenspan - No National Housing Bubble

[FreeTrader]

REUTERS (removed link as it's not static)

WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan on Friday said the booming U.S. housing sector shows signs of some "froth" but that the central bank does not see a national housing bubble.

"We don't perceive that there is a national bubble but it's hard not to see ... that there are a lot of local bubbles," Greenspan told the Economic Club of New York.

Greenspan said he saw "very significant acceleration" in the turnover of U.S. homes, due in part to purchases of second homes.

He said speculation in both the housing and mortgage markets had accelerated, and that people were reaching financially to purchase homes, using adjustable-rate and interest-only loans to make houses more affordable.

But the central bank chief said the inability to reduce home prices, which have climbed by double-digit percentages over the past few years, was not a serious macroeconomic problem. Prices, he said, were supported by relatively slow productivity growth in home building.

Eventually, home prices will decline because the underlying pattern is unsustainable, Greenspan said.

"Without calling the overall national issue a bubble, it's pretty clear that it's an unsustainable underlying pattern. What we see are a number of forces, which are, as far as I can judge, not infinitely projectable," he said.

But when home prices slow, only those who purchased homes just as the prices begin to drop will be impacted by the decline, Greenspan said.

"The number of occasions in which an average level of prices in the United States have actually gone down are very rare," he said.

"Even if there are declines in prices, the significant run-up to date has so increased equity in homes that only those who have purchased very recently, purchased just before prices actually literally go down, are going to have problems," he said.

Edited May 20, 2005 by FreeTrader

[the end is a bit nigher]

if it looks like a bubble, feels like a bubble and stinks like a bubble, it's a fri**ing bubble

pop

[FreeTrader]

Even though he denied the existence of a bubble, I was surprised by this comment:

Eventually, home prices will decline because the underlying pattern is unsustainable, Greenspan said.

Can you imagine anyone in the UK establishment making such a remark? Why is it taboo to do so?

[gone west]

"We don't perceive that there is a national bubble but it's hard not to see ... that there are a lot of local bubbles," Greenspan told the Economic Club of New York.

<{POST_SNAPBACK}>

I bet if you added up the population of these areas that had "local" bubbles, you would come close to 50% of the population. No bubble in Dirtbag, North Dakota, but New York has one, therefore, it's not national.

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

Will Greenspan be retiring soon?

[FreeTrader]

Will Greenspan be retiring soon?

Supposedly at the beginning of next year, but there's talk of him staying on so he can set a new record for number of years as Fed chairman.

[Guest Charlie The Tramp]

I like that Greenspan bloke, and there was me thinking only I was suffering from senile dementia.

[FreeTrader]

I like that Greenspan bloke, and there was me thinking only I was suffering from senile dementia. 

Charlie, since I joined the forum your post content / signature content ratio has gone from 3.86 to 0.37.

[Sledgehead]

Throw this into the pot from Greenspan yesterday:

Greenspan Builds Case for Limiting Fannie Mae, Freddie Mac Holdings, Says Won't Hurt Housing

WASHINGTON (AP) -- Federal Reserve Chairman Alan Greenspan again pushed for limits on the multibillion-dollar mortgage holdings of Fannie Mae and Freddie Mac, saying such restrictions would not hurt the thriving housing market.

Greenspan, who has been pressing Congress to limit the holdings of the two mortgage giants, warned on Thursday that their debt poses a risk to U.S. financial markets.

As Fannie and Freddie grow ever larger, their ability "to quickly correct a misjudgment in their complex hedging strategies becomes more difficult," Greenspan said. "We are thus highly dependent on the risk managers at Fannie and Freddie to do everything right."

Greenspan made his remarks in a speech delivered via satellite to a housing conference in Atlanta. A copy of the speech was distributed in Washington.

Congress is exploring various proposals to rein in Fannie Mae, the No. 1 U.S. buyer of home mortgages, and its rival, Freddie Mac, which ranks as the second-largest buyer. They were created by Congress to inject money into the home-loan market. Fannie Mae and Freddie Mac buy mortgages and bundle them into securities for sale to investors worldwide.

At the end of 1990, Fannie's and Freddie's combined portfolios amounted to $132 billion, Greenspan said. By 2003, their combined holdings came to $1.5 trillion.

"The assets required for Fannie and Freddie to achieve their mission are but a small fraction of the current level of their assets," Greenspan said. Thus if Congress were to limit the two companies' holdings so that they can achieve their mission, a substantial liquidation would be required over time, the Fed chief said.

He said this could be done fairly smoothly, without disruptions to the housing market. "The implementation of portfolio limits should pose no significant difficulties," Greenspan said.

Unwinding some of Fannie's and Freddie's holdings would not raise mortgage rates for homeowners because so many big banks and other lenders compete with them in the home-loan market, he said.

Greenspan said the Fed also sees little evidence to support the notion that the availability of fixed-rate mortgages is tied to the size of Fannie's and Freddie's portfolios. He also said it is "difficult to see" how the two companies' portfolios can influence home ownership.

Much of the increase in home ownership seen in recent years seems to be due to growing incomes of households and generally low borrowing costs, he said.

"Without the needed restrictions on the size of (Fannie's and Freddie's) balance sheets, we put at risk our ability to preserve safe and sound financial markets in the United States, a key ingredient of support for housing," he said.

Federal regulators last year accused Fannie Mae of serious accounting problems. It was ordered to restate earnings back to 2001, a correction that could reach an estimated $11 billion. The accounting fiasco, which partly involved how derivatives were accounted for, led to the ouster of the company's chief executive and top financial officer.

Freddie Mac had its own accounting debacle in 2003, which also involved how derivatives were accounted for, and three top executives were forced out. It had misstated earnings by $5 billion for 2000-2002.

Federal Reserve: http://www.federalreserve.gov/

What do folks make of this?

Edited May 20, 2005 by Sledgehead

[Tonyb69]

FT Report - Greenspan warns of strains in housing market

[Guest Charlie The Tramp]

Charlie, since I joined the forum your post content / signature content ratio has gone from 3.86 to 0.37.

<{POST_SNAPBACK}>

Sorry about that FT. In the past weeks the forum has been running at full speed and most of my time online is reading as many posts as possible. Being a one finger typist doesn`t help, but I do give better content ratio on threads I start.

Will try to do better.

[FreeTrader]

Sorry about that FT. In the past weeks the forum has been running at full speed and most of my time online is reading as many posts as possible. Being a one finger typist doesn`t help, but I do give better content ratio on threads I start.

Will try to do better. 

Oops, sorry, that was meant to be a joke. Your one-liners are great. Please ignore what I said.

Never was too hot in the humour department.

[Guest Charlie The Tramp]

Oops, sorry, that was meant to be a joke. Your one-liners are great. Please ignore what I said.

Never was too hot in the humour department. 

<{POST_SNAPBACK}>

I took it as a joke. Just interested in the response I would get from my reply.

[Once in a lifetime]

An American article warning the obvious

http://www.stltoday.com/stltoday/business/...C1?OpenDocument

Interesting comparison shrugging off the dot.com bust, because people believe

in the new wealth of home ownership! the new lie.

What appears to be happening is a classic case of people chasing a hot investment just about the time it's reached the top, said Scott Bedell, senior portfolio manager for U.S. Bancorp Private Asset Management in Clayton.

"The nice thing is the value (of the house) isn't published in the paper," Bedell said. If people saw prices fall, "they would panic and sell into that."

‘BTL crucifixion?’

’no thanks I’ll wait for prices to drop!’