Greenspan Discusses Effects, Future of Housing Market

Echoing the statements of his successor, Ben Bernanke, the former Federal Reserve chairman, Alan Greenspan, said this week that the worst of the housing market adjustment is over, and he is preparing to publish an analysis of the “serious dispute” over the true effect of mortgage wealth on consumer spending.

U.S. housing starts and other data indicated the dampening effect that a slow housing market had on gross domestic product was at its maximum in the third quarter, when growth slowed to a modest 1.6 percent annual rate, he said at an investor conference.

Greenspan said he expected inventory levels to come down at a reasonably rapid pace and that it looks as though sales figures have stabilized. But he also said there would be actual price declines in some of the currently overvalued housing markets.

“That will have some impact on consumer expenditures,” he said. “We haven’t seen it yet.”

Separately, the National Association of Realtors reported that the median price of a home dropped to $221,000 in October, a decline of 3.5 per cent from a year ago. It was the biggest decline on record in terms of year-by-year tracking of an asset that many Americans use as a gauge of their overall financial well-being.

The question over home mortgage equity extraction was whether equity that is extracted is acting as a proxy for all types of financing of goods that would’ve been bought anyway.

“The debate going on is a very interesting one, but I would say is inconclusive,” Greenspan said.

The paper Greenspan is co-writing will include data on home equity extraction dating to 1968 and a more detailed analysis of data from 1991-present. He did not say when the research would be released.