Greenspan Sees No Housing Bubble
Federal Reserve chairman says sector shows sign of 'froth' but doesn't perceive a national bubble.
WASHINGTON (Reuters) - Federal Reserve Chairman Alan Greenspan said Friday 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.
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