February 21, 2005 07:44 AM
Fed Chief Sees Home Price Bubble
Excerpt: Federal Reserve Chairman Alan Greenspan yesterday said he sees a housing price bubble in "certain areas" and suspects prices are vulnerable to declines, but they will not collapse in any way that threatens the economy.
Federal Reserve Chairman Alan Greenspan yesterday said he sees a housing price bubble in "certain areas" and suspects prices are vulnerable to declines, but they will not collapse in any way that threatens the economy.
"I think we're running into certain problems in certain localized areas. We do have characteristics of bubbles in certain areas, but not, as best I can judge, nationwide," he told the House Financial Services Committee. "I don't expect that we will run into anything resembling a collapsing bubble. I do believe that it is conceivable we will get some reduction in overall prices, as we've had in the past, but that is not a particular problem."
Mr. Greenspan was responding to a question from Rep. Scott Garrett, a New Jersey Republican who said he is buying a house in Washington, one of several dozen urban areas on the East and West coasts that economists suspect may be experiencing housing bubbles.
Washington home prices surged on average by 27 percent last year, twice the national rate. In Northern Virginia and many other parts of the region, home values have doubled since 2000 " a boon to homeowners and housing investors but a bane to those trying to buy into the market.
"The bubble is about to burst as soon as I buy my house down here," Mr. Garrett complained to the Fed chairman.
Mr. Greenspan said homeowners have accumulated considerable wealth because of the rapid run-up in the value of their homes in recent years, and many have been tapping into that wealth through home sales, cash-out refinancings and home-equity loans.
The Fed estimates that home values have doubled from $8 trillion to $16 trillion since 1996, outpacing the rapid growth of mortgage debt, which also has doubled from $3.5 trillion to $7 trillion in that time.
"Remember that there's a very significant buffer in home equities at this stage," he said, referring to the $9 trillion difference between home values and outstanding mortgage debt.
Since most homebuyers have put down deposits of 20 percent, they have that much of a cushion against a potential drop in their home values, he said. Even when homebuyers have obtained loans of as much as 100 percent of a house's cost, he said, the rapid gains in value in many cases has provided them with a buffer against decline.
But the Fed chairman conceded that any drop in home values " which could affect as much as one-fifth of the population, according to private estimates " could put a damper on consumer spending and economic growth. Consumer spending since 2000 has been fed by the "wealth effect" created by rising home values.
"Some reversal in that [wealth] is not out of the question. If that were to occur, households would probably perceive the need to save more out of current income; the personal saving rate would accordingly rise, and consumer spending would slow."
Mr. Greenspan indicated that the Fed would like to see consumer spending out of household wealth slow some, since it has been a major factor driving down the personal savings rate to a meager 1 percent last year from a historic average around 7 percent. The Fed's campaign to raise interest rates in the last year thus has been aimed in part at cooling the overheated housing market.
READ FULL STORY ...Title Insurance Protects Lenders. So Why Shouldn't They Pay for It? - Feb 10, 2005
The Shiller Interview - Jan 25, 2005
HELOC Rates Move Closer To Home Equity Loans - Jan 23, 2005
Finding an Affordable Home Gets Harder - Jan 17, 2005
If you're paying off student loans, check out the tax deductions available to you. - Jan 17, 2005
What Is Your Home Worth? - Jan 04, 2005
U.S. Sales Of Existing Homes Hit Record - Dec 29, 2004
What Length Mortgage Should You Get? - Dec 27, 2004
Maneuvering Property-Swap Tax Details - Dec 27, 2004
No Money Down - Dec 24, 2004
New Home Sales Tumble - Dec 23, 2004
If The Bubble Bursts... - Dec 18, 2004
Housing Starts Tumble, But ... - Dec 18, 2004
A New Way to Hedge Your Home's Paper Profit - Dec 12, 2004
California, U.S. in a Housing 'Bubble,' UCLA Forecast Says - Dec 11, 2004
21st-Century Landlords - Dec 10, 2004
Get Real About Real Estate - Dec 09, 2004
Can There Be Too Many Homeowners? - Dec 06, 2004
Selling Your Home - Dec 06, 2004
Conforming Mortgage Loan Limits Rise For 2005 - Dec 04, 2004
12 Tips For Wise Use Of Equity - Dec 01, 2004
Housing Wealth Reverberates - Nov 30, 2004
More Mortgages To Be 'Conforming' - Nov 30, 2004
Realtors Engage In Turf Battle With Discounters - Nov 28, 2004
Expanding The American Dream Commitment - Nov 26, 2004
'Tis the Season to Fix Up Your House - Nov 26, 2004
Sell Your Home — Fast - Nov 26, 2004
Most Expensive Gated Communities In America 2004 - Nov 26, 2004
Exchanging Real Estate Tax Free - Nov 25, 2004
Home Equity For The Holidays? OK, With Caution. - Nov 25, 2004
Does It Pay To Save? - Nov 23, 2004
The High Earner/Poor Saver - Nov 20, 2004
Six-Figure Zip Codes - Nov 20, 2004
Buyer's Home Feature Preferences Reflect Lifestyles - Nov 16, 2004
Pattern of Strong Home-Price Gains Continues in Most Metro Areas - Nov 16, 2004
• Structured Settlements
www.setcap.com - cash for structured settlements, sell annuity, lottery winnings, and more.
• Personal Finance: Finance News Today provides money saving tips, news, and articles on personal finance issues like insurance, real estate, college planning and much more.
• Compare all our 0% Credit Card UK against our 0% balance transfers and cash back deals.
• Browse through our Credit Cards deals and apply online.
• financial tip - financial tips article and more.
• Arizona llc - incorporate a arizona llc. they offer solutions for limited liability company asset protection in arizona and california. incorporation services are provided online with 24 hour filings and expedited approvals. www.paralegal-plus.com for cpa lawyers.
• Credit Repair
repairmycreditnow.com/Credit_Repair_Advice.htm - repair my credit now credit services offers credit repair, restoration and education through our exclusive "v" phase process â„¢.
• Citibank Home Equity Lines of Credit: Rates as low as Prime - 0.50% variable APR for Life, currently 5.50% variable APR.
• Day Trading - day trading signals for active stock and options traders.
• Ken Langone - ken langone: make my day
• Credit Repair - repair my credit now credit services offers credit repair, restoration and education through our exclusive "v" phase process â„¢
• Online Option Trading - oexoptions is an oex online stock option trading company offering a free 15-day trial for all new customers.
• fix bad credit
Want to See Your Ads Here? Claim Your Ad Space at Personal Finance Weblog by Writing to Webmaster. Starting at $25/month, see your text ads in more than 2,000 indexed pages at PFBlog, the Best Personal Finance Blog, or MM Money, MM's Daily Personal Finance Readings. Full Rate Card Available Here.
