Posted on 09/21/2007 5:28:58 PM PDT by GodGunsGuts
House prices to drop much lower: Greenspan
Fri Sep 21, 2007
VIENNA (Reuters) - A big overhang of property will bring U.S. house prices down further, but it is too early to say if the economy will plunge into recession, former Federal Reserve chief Alan Greenspan was quoted as saying on Friday.
Greenspan said in an interview with Austrian magazine Format that low interest rates in the past 15 years were to blame for the house price bubble, but that central banks were powerless when they tried to bring it under control.
"It's a difficult situation, there is an enormous overhang on the real estate market," Greenspan was quoted as saying. "Many buildings which just have been finished can't be sold ..."
"So far, prices have dropped only slightly. But it was enough to cause alarm around the world," he said. "Prices are going to fall much lower yet."
"However, it is too early to answer the question about a recession. We simply don't know yet. It depends on how flexibly the economy can react," he said.
Greenspan said deregulation and the introduction of market economies in the former Communist bloc after the Berlin Wall fell in 1989 had caused a global boom and a worldwide reduction of interest rates, which both helped fuel the property bubble.
"There is no doubt about the fact that low interest rates for long-term government bonds have caused the real estate bubble in the United States," he said.
"The Federal Reserve began a series of interest rate increases in 2004. We were hoping to bring the speculative excesses in the real estate sector under control. We failed. We tried it again in 2005. Failure," he said.
"Nobody could do anything about it, neither us nor the European Central Bank. We were powerless," he said.
...but it will have to wait until I’m done with dinner—GGG
Hey, we want the Dow to go to 50,000!
Course a jar of Peanut Butter will run ya $69.80!!!
People don’t understand how much equity in the Dow is controlled by “institutional investors” or whatever. That means government. Something like 60% is the figure I heard.
So the Dow is, for all intents and purposes, as false as the housing sector was. The gummint can raise or lower the Dow any time they want, just by tweaking the interest rates, or printing more FRN’s and bidding up the stocks.
Little relation to reality as I see it. But it gives some folks the warm fuzzies.
And I agree, they should not have done any cuts, but they did, they had to, because the speculators on the street had already priced a projected cut in. If the Fed DIDN’T make a cut, the indexes would have fallen through the floor.
I’m just glad I don’t own any stocks. Or commercial paper.
A 15,000 Dow with M3 about 50% higher than it is today (which can only be estimated since the fed decided that M3 is something we’d better not see).
According to the article you posted, Greenspan is saying it is not a good time to buy a house cheap, because they are going to get cheaper.
Here in California, houses are anything but “cheap”.
I don’t think you need a crystal ball. Housing prices always lag behind starts and sales. So when sales soar, prices follow after a while. When sales plunge, prices follow after a while. Sales have plunged over a year ago. Prices didn’t start to plunge until recently. We are just beginning to see the movement down in prices.
Most sellers seem to be adjusting their prices down slowly and gradually, but are still not selling their homes. It remains to be seen what the actual selling prices of all the homes in existing inventory will be. I have seen huge reductions in prices of new homes sold by builders, and this will have an impact on existing home prices, but so far sellers have been reluctant to let their homes go for those prices, or they HAVE TO HAVE more money to come out even.
I don’t think it will take a crystal ball to predict that home prices are still declining overall nation-wide. It is just the natural outcome of a plunge in sales. Sales have fallen off a cliff.
Great! So now it’s time to take the maximum equity out of my house (while it’s still appraised high), keep it until the market crashes, and have enough cash to outright buy a second house...
I got a friend that recently bought a house, on impulse mostly, with out even really being ready to sell the current one. And this right on the heels of those Charlie Foxtrot tax reassessments. Thought it was crazy then, and even more so now. I can't imagine holding two mortgages for very long in this market.
Good luck on selling your house.
that is true almost everywhere, if you buy a house in 1999 for 80k then in 2005 it is worth 240k the in 2007 it is worth 192k why would someone complain, only a true pessimist would say “I lost 48,000”
Sadly, it won't. Most of the property tax money goes to the counties and cities. The state's funded primarily by income, corporate, and 'use' taxes. The exception would be the schools system.
Considering Greenspan’s track record for being wrong, I wonder if the housing market is about bottomed out.
I think the housing bubble has more to do with the computer revolution and the boomers coming of financial age than Eastern European economies and the long term bond rate. Greenspan needs to get out more and spend less time sniffing his own butt.
He recently said Hillary wouldn’t be a bad President. I rest my case.
If the value drops, the mil rate goes up. It's a lose-lose situation for the homeowner.
Not if governments are going to keep raising property taxes to squeeze more out of the home owner to pay for their expanding spending.
Indiana just went through a major CF of a reassessment that saw taxes go up 100's of a percent. Houses are on the market all over the place. The market is depressing, and that's just from taxes, and doesn't count all the other economic factors in play.
That is an oftly silly way to spell awfully.
He may try to shift most of the blame to Bernanke, but I doubt that it would work. The guy will have long painful years ahead. He will die thoroughly discredited.
The media is crazy about Greenspan's crystal balls but that's their problem. Of course prices will go much lower, and they'll go much higher too because prices fluctuate.
Greenspan ignorance shows up in his timing, or lack thereof, like when he whined about "irrational exuberance" at the beginning of years of bull market growth, but all during the dot.com mania all he cared about was that silly killer Y2K scam that was supposed to end all life as we know it.
Sir Alan just isn't all he's cranked up to be.
Ah yes, a buyer’s market....
Sounds like it maybe time for more rental houses, need to put those foreclosed folks up somewhere, and I’d be happy to get the rent from them...
Institutional investors are not government run. It means mutual funds, investment firms, banks, etc. PE ratios of stocks in the market are actually very solid right now. As such there is little risk to the downside in a 1-3 year timeframe for now.
If you want to catch a falling knife buy now.
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