Greenspan predicts slower real estate price growth

Fed Reserve chair acknowledges localized housing bubbles
Inman News
Alan Greenspan, chairman of the Federal Reserve, invoked the B-word Friday, acknowledging that the housing market contains "a lot of local bubbles" with "unsustainable" price gains, media reports said.

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

However, the Federal Reserve chair also said significant price declines are unlikely, reports said.
Greenspan pointed to a big increase in speculation in homes, particularly in second homes, and acknowledged concerns over "froth" in the market, according to reports, reports said. As a result of this, there are "a lot of local bubbles" around the country, Greenspan said, according to reports.

Even if housing prices do fall, the drop won't hit most homeowners hard because of the huge amount of equity already in their homes, Greenspan reportedly told more than 1,000 onlookers at a meeting of the New York Economic Club.

"There are a number of things which I think suggest, at minimum, that there's a little froth in this market," Greenspan reportedly said, to laughs in the audience.

Many have expressed concern over the current red-hot housing market.

For example, while saying that the housing market remains "unusually strong," David Lereah, chief economist for the National Association of Realtors, said he expects that some hyper-extended local real estate markets will sour within the next couple of years, while the overall housing market should remain robust for at least the next couple of years.

Lereah made the remarks at a presentation in mid-May at the National Association of Realtors' midyear meetings, saying loose lending and speculative buying are the greatest risks "our industry faces right now."

Analysts have found some reason to be concerned – increasing debt, fast-rising home prices in some markets, a larger share of adjustable-rate mortgages, and a higher share of home-price-to-income and home-price-to-rent ratios in some markets. Financial scandals that have plagued mortgage giants Fannie Mae and Freddie Mac could lead to some industry-shaking reforms, as the trade deficit is swelling, oil prices are increasing, and the value of the dollar is dropping.