MSN Money Greenspan warns on dangers in US housing market

"Alan Greenspan sounded his clearest warning yet on the dangers of an over-heated US housing market, raising the prospect of falling prices when the boom comes to an end and arguing that it was hard to predict the impact on consumer spending.

Speaking at the end of the Federal Reserve's weekend symposium in Jackson Hole, the Fed chairman said: "The housing boom will inevitably simmer down. As part of that process, house turnover will decline from currently historic levels while home price increases will slow and prices could even decrease.""

The New York Times Greenspan and the Bubble
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"But as recently as last October Mr. Greenspan dismissed talk of a housing bubble: "While local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely."

Wait, it gets worse. These days Mr. Greenspan expresses concern about the financial risks created by "the prevalence of interest-only loans and the introduction of more-exotic forms of adjustable-rate mortgages." But last year he encouraged families to take on those very risks, touting the advantages of adjustable-rate mortgages and declaring that "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage."

If Mr. Greenspan had said two years ago what he's saying now, people might have borrowed less and bought more wisely. But he didn't, and now it's too late."

redux [08.22.04]
New York Times Be Warned: Mr. Bubble's Worried Again
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"Today, nine years after his lunch with Mr. Greenspan and five years after the markets finally did crash, Mr. Shiller is sounding the same warning for real estate that he did for stocks. In speeches, in television and radio interviews and in a second edition of his prophetic 2000 book, "Irrational Exuberance," he is arguing that the housing craze is another bubble destined to end badly, just as every other real-estate boom on record has.

These, in short, are his second 15 minutes of gloom. He predicts that prices could fall 40 percent in inflation-adjusted terms over the next generation and that the end of the bubble will probably cause a recession at some point."

USA Today Home prices 'extremely overvalued' in 53 cities

"Single-family home prices are "extremely overvalued" in 53 cities that make up nearly a third of the overall U.S. housing market, putting them at high risk of price declines, according to a study released today."

"The highest-risk markets are in California; Southern Florida; parts of the Boston area; the Long Island, N.Y., counties of Nassau and Suffolk; and Ocean City, N.J."

""For the U.S. as a whole, I expect we're going to have an orderly correction. But that doesn't mean it's going to be equally orderly in all places," DeKaser says."

BusinessWeek Is A Housing Bubble About To Burst?

"But this time something important is different: Interest rates are inching up. It was the Federal Reserve-engineered decline in rates that inflated the housing bubble. But starting with a quarter-point increase in the funds rate on June 30, the Fed has begun what promises to be a prolonged tightening cycle. Even if the Fed's hikes are measured, higher mortgage rates will inevitably make houses less affordable. If 30-year fixed-rate mortgages rise just one percentage point, to 7.2% from their current 6.2% -- well within the range of forecasts -- house prices would have to fall 11% to keep new buyers' monthly mortgage payments from rising. If fixed rates went to 8%, prices would need to fall 20% to keep payments level.

Rising rates will hurt more than in the past because the market is more dependent on heavily leveraged buyers."

National Housing Institue The Housing Bubble: A Time Bomb in Low-Income Communities?

"These data indicate that the housing bubble has even affected the lower-income homes. While the price declines may be smaller than for higher cost housing, many lower-income homebuyers may still see the price of their homes fall by 20 to 30 percent when the housing bubble bursts. This could mean, for example, that a home bought today for $160,000 sells for $120,000 to $130,000 in two or three years, if the housing bubble bursts.

Price declines of this magnitude will be devastating for families who have struggled to afford the homes they purchase. While some homeowners may live in their houses long enough for inflation to eventually restore home prices to current levels, few would be happy to sell their house in twenty years for the price they paid today."

The Economist In come the waves

"NEVER before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. Rising property prices helped to prop up the world economy after the stockmarket bubble burst in 2000. What if the housing boom now turns to bust?

According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stockmarket bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history."