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Posts Tagged ‘Alan Greenspan’

Greenspan: Stability Fanned Speculative Excesses

October 12, 2005 | 8:44 am | |

In a speech today, Federal Reserve Chairman Alan Greenspan said that the US economy’s flexibility and stability have fanned speculative excesses [WSJ].

Here’s the text of his speech [FRB]

Although the business cycle has not disappeared, flexibility has made the economy more resilient to shocks and more stable overall during the past couple of decades. To be sure, that stability, by fostering speculative excesses, has created some new challenges for policymakers. But more fundamentally, an environment of greater economic stability has been key to the impressive growth in the standards of living and economic welfare so evident in the United States.

Greenspanspeak Translation: because the economy is so stable and flexible, its more risky. hmmm…


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Greenspan In The House: Study Downplays High Risk Financing As Cause Of Rise In Prices

September 26, 2005 | 8:57 pm |

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Federal Reserve Chairman Alan Greenspan spoke to the American Bankers Association today [Federal Reserve] and re-visited the topic of housing. He indicated that any decline in home prices would not necessarily be disruptive [MarketWatch].

Some key points from the a new study he co-authored:

  • Owner-occupied homes have risen 9% on average annually.
  • US housing market is a collection of local market loosely connected by mortgage rates, migration and construction capacity.
  • Speculation is largely local, the fees associated with a sale are a formidable barrier.
  • 14% of home purchases are second homes up from 7% in 2000.
  • Less than 5% of all home mortgages have an LTV greater than 90%.
  • The use of piggy-back loans is not strongly correlated with housing appreciation.
  • LTV are lower in states with the highest appreciation rates.

These are interesting points made that seem to belie many of the arguments that high risk financing is causing a housing bubble.


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When The Levee Breaks: Media Bubble Coverage Replaced By Katrina Tragedy

September 16, 2005 | 7:28 am |

Media coverage of the housing boom this summer crested in August after dominating the headlines, especially in Big Media. It was placed on the back burner once Hurricane Katrina inflicted its damage, particularly on New Orleans. The scope of the tragedy makes the real estate boom sound fairly petty given amount of human suffering in Louisiana, Mississippi and Alabama. The Federal Government gave the press plenty of subjects to write about as we enter the blame game so popular in Washington.

  1. Did the housing boom end?
  2. Have we entered a slow period for real estate news because nothing new is really going on?
  3. Were readers ready for a break from the real estate housing boom coverage?

The answers are no, kind of and yes.

  1. The housing boom has continued through the summer as mortgage rates remain low.
  2. August is often a particularly slow news period yet it seemed that real estate coverage was disproportional to other issues because its become an American obsession (and an easy sell to advertisers).
  3. Readers were starting to get pretty cynical about the quantity of coverage and jaded about some of the warning signs of overheating.

The hurricane’s affect on the economy will likely segue into exhaustive housing boom coverage. In the near term, the effect of the now limited coverage may benefit the housing market because the intensity of the coverage is less “in your face.” However, in the long term, it probably won’t make any difference at all. There’s a lot of psychology to consider, but at the end of the day, the market is the market.


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With Oil In The Mix, Asset Prices Are Expected To Simmer Down

August 28, 2005 | 12:18 am | |

houseupstairs

Greenspan said today that the US housing boom is sure to end eventually and there should be a drop in home prices.

[Webmaster’s Note: I’m am fairly certain most people do not believe the housing boom will go on forever so tell us something we don’t know.]

A weakened housing market would take the punch out of an inflation threat and therefore the pressure off the Fed to keep raising short term rates. Consumer spending is reported to account for 70% of the US economy and this driven largely by the ability to tap home equity.

housinginhand

To date, some US economists believe the “wealth effect” of housing are offsetting the negative influence of rising oil prices. [Note: Paid Subcr.] The ability to pull equity out of the housing sector has helped consumers maintain discretionary spending despite rising oil prices.

Besides rising oil prices, labor costs are expected to rise keeping pressure on the Fed to raise short term rates.

The Fed believes that home prices will continue at their brisk pace through the third quarter, before easing in the final quarter of the year.

Here’s a great article written last May called “Don’t Buy Housing Bubble Propaganda” by the webmaster of one of the best economic blogs out there: Big Picture

The author discusses mortgage rates and changing demographics better than any article I have read on this topic. One item of particular interest: More than 80% of all stock purchases are speculative. According to the NAR, housing is currently at 23% which seems to pale in comparison, doesn’t it?


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Live From Wyoming: Low, Risk Premiums

August 27, 2005 | 2:09 pm | |

hills

Greenspan spoke this week at symposium, held in Jackson Hole, Wyoming, sponsored by the Federal Reserve on the legacy of his 18 year era. He took the position that the housing market now suffers an imbalance.

The Federal Reserve is paying closer attention to the rising values of assets such as stocks, bonds and homes, as low interest rates encourage more risk-taking, Fed Chairman Alan Greenspan said.

Low “Risk Premiums” (A new mantra?) This trend reflects what Mr. Greenspan said was the increased willingness of investors to accept low “risk premiums, a willingness based on a complacent assumption that the low interest rates, low inflation and strong growth of recent years are likely to be permanent.”

tightrope

His concern is when (bond) investors become more cautious, yields will rise, lowering housing values and then selloff of bonds that caused rates to drop in the first place. “This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums.”

Other notable Greenspan-speak, etched in the public conscience are:

A Conundrum – An inverted yield curve appears to loom on the horizon.

A Frothy Housing Market – “The Fed feels it needs to squeeze more air out of the market – the housing market in particular, although the Fed has stressed that it’s not targeting housing with interest-rate policy.”

Irrational Exuberance – Greenspan first used the phrase in 1996 several years before the stock market corrected in 2000 but it came to define the rapid run up in stocks in the 1990’s. The analysts that missed the dot com bubble now seem to be the ones warning us about the housing market boom’s eventual conversion to bust.


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Lies, Damn Lies, And Government Statistics: Part II

August 21, 2005 | 12:07 pm | |

Go to the prequel of this post Lies, Damn Lies, And Government Statistics: Part I

And here is another post of the same topic concerning PPI Well, Maybe The Inflation Threat Is Not That Bad After All?

…After I finished my post on this topic last Friday, I came across yet another significant statistic that we should be uncomfortable with. Daniel Gross wrote an excellent article on productivity stats that suggests that the stats have even confounded Greenspan.

productivity
Source: New York Times


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Going Dutch

August 21, 2005 | 11:21 am | |

bubble

In today’s New York Times article, Professor Robert Shiller “>voices his concern about a real estate bubble. Professor Schiller is well-known for predicting the last stock market correction and possibly influencing Fed Chairman Greenspan’s use of the phrase irrational exuberance, the name of Professor Shiller’s subsequent book.

According to the article, origins of a housing bubble began with the Dutch about 400 years ago. Recently, a Dutch economist, Piet M. A. Eichholtz, a professor of Maastricht University, used Mr. Schiller’s method for converting actual sales into an index and found that the housing market saw a series of booms and busts. They found that in the long run, there was no long term trend and that prices match gains in personal income.

Mr. Shiller has a Norwegian housing index and a US Index that shows a similar pattern and is concerned that the recent run-up shows we are in a bubble.

shillerindex
Source: New York Times


To his critics, he says that housing charts generally go back to the 1970’s and stock market charts go back almost a century.


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