Special offer

And You Thought Low Interest Rates Led the Housing Boom

By
Real Estate Broker/Owner with RE/MAX Property Concierge

Today's Wall Street Journal has a preview of the new book by Alan Greenspan, entitled "The Age of Turbulence: Adventures in a New World".

In the book he speaks of several things including criticizing the current administration on its economic policy. Forget that, what I found interesting was his analysis of what has fueled the housing market over the last several years. I thought it was low interest rates, greedy lenders, unqualified borrowers, easy money and a mentality that the market would continue to increase. Turns out, according to Mr. Greenspan, it was the end of communism. The end of communism "unleashed hundreds of millions of workers on global markets, putting downward pressure on wages and prices and thus on long term interest rates".

According to Jim Cramer this is the guy who espoused the benefits of adjustable rate mortgages and then hiked interest rates 17 times in a row. But it was the end of communism that fueled the greatest bull market for housing we are likely to see in our lifetime. Wow, I had no idea.

To this, we owe a tremendous debt of gratitude to Ronald Reagan. Many people associate the end of communism with the way in which he negotiated with the Soviet Union, and it was never more evident than in the speech he gave in Berlin, in which he took Mr. Gorbachev to task. Little did we know then, that speech would ignite prosperity in the housing market and overall economy to the likes of which we may never see again.

I miss Ronald Reagan.

<!-- -->

Comments (4)

Anthony Stokes-Pereira
Better Homes and Gardens Rand Realty - Nanuet, NY
Realtor

Hi Doug,

WOW!!!!

Great post and very informative.. I will read that article today.

Anthony

Sep 16, 2007 03:04 AM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Alan Greenspan is addled. 

When we sold all of those homes back in 2001, 2002, 2003, 2004 and early 2005, our buyers clearly said they wanted to take adventage of the low interest rates. 

Not a single one told me they were celebrating the end of communism by buying a home.

Geez! !

Sep 16, 2007 03:06 AM
Brian Schulman
Coldwell Banker Residential Brokerage, Lancaster PA - Lancaster, PA
Lancaster County PA RealEstate Expert 717-951-5552

Doug, the end of communism began a renaissance of capitalism and consumerism in countries that previously had had little or no trade with us.  Certainly Ronald Reagan deserves credit for hastening the end of communism, but it was doomed to eventually fail under its own weight.

A more salient point that Greenspan made was that wild overspending by Congress and the President contributed to the boom atmosphere that has led to our current oversold conditions. 

Sep 16, 2007 03:23 AM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

I would suggest that if someone wants to blame anyone for the boom in housing that let to the eventual market crash, blame the attack on the US on September 11, 2001. 

The market crashed and Greenspan did what he did to save the stock market and the banks.  The housing boom benefited but got out of hand when prices escalated to a point where folks put their foot down and refused to buy. 

Greenspan is living in the wrong generation.

 

Sep 16, 2007 03:44 AM