Friday, May 20, 2005

Greenspan: Only Recent Home Buyers to Have Problems

by Calculated Risk on 5/20/2005 03:57:00 PM

"... only those who have purchased very recently, purchased just before prices actually literally go down, are going to have problems."
Fed Chairman Alan Greenspan, May 20, 2005

Chairman Greenspan gave a speech on energy today, but in the Q&A he answered some questions on the housing market. Here are a few excerpts from Bloomberg:

Some regions of the U.S. housing market are showing signs of unsustainable ``speculation'' and ``froth'' based on fast turnover of existing homes, Federal Reserve Chairman Alan Greenspan said. The price surge may ``simmer down'' as housing becomes less affordable, he said.

``It's pretty clear that it's an unsustainable underlying pattern,'' Greenspan said in response to a question after a speech on markets to the New York Economic Club. ``People are reaching to be able to pay the prices to be able to move into a home.''

``There are a few things that suggest, at a minimum, there's a little froth in this market,'' Greenspan said. While ``we don't perceive that there is a national bubble,'' he said that ``it's hard not to see that there are a lot of local bubbles.''

And from CNN:
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.
My emphasis added. Very comforting for recent homebuyers.