Tuesday, June 09, 2009
Jon Lansner at the Orange County Register looks back at former Fed Chairman Alan Greenspan's 2005 housing market "froth" sighting.
Every year on this blog, we remember this solemn day. Four years ago today — June 9, 2005 — then-Fed czar Alan Greenspan gave real estate watchers a new word: “froth.” (My taste test of the froth speech IS HERE!)June 2005 was just a few months after housing bubble blogs starting popping up, warning those few would-be buyers who cared to listen that, despite what the National Association of Realtors might tell you, it wasn't a good time to buy a house.
He told Congress that eventful day:Although a “bubble” in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels.
Looking back on those words today, it is stunning how naive they appear.
… plus, he said …If memory serves, in recent years, the former Maestro claims to have acknowledged that he did indeed view the housing market as a full-fledged bubble at that time but, consistent with the now discredited policy of doing nothing to prevent huge asset bubbles from growing so big as to bring down the entire financial system, he felt it wise to wait until it burst and then "mop up" after it.The apparent froth in housing markets may have spilled over into mortgage markets. The dramatic increase in the prevalence of interest-only loans, as well as the introduction of other relatively exotic forms of adjustable-rate mortgages, are developments of particular concern. To be sure, these financing vehicles have their appropriate uses. But to the extent that some households may be employing these instruments to purchase a home that would otherwise be unaffordable, their use is beginning to add to the pressures in the marketplace.That was 2005! (Full text of the speech IS HERE!) Could you imagine if he had called a bubble a bubble that day … AND ACTED ACCORDINGLY … where we might be today?
You don't hear too much talk about "mopping up" after the bursting of this asset bubble...
Here's a reader poll at Jon's blog on the 2005 "froth" sighting - you can still cast a vote: