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Extra, Extra, Extra … Alan Greenspan Predicts Housing Declines!

You probably heard the old adage “when Alan Greenspan talks –the financial world listens”. I was part of this world yesterday - listening to Leslie Stahl interview Alan Greenspan on 60 Minutes. When he mentioned Housing - I was all ears. Mr. Greenspan’s opinion was that the housing market has much lower to fall, with home prices declining even farther. To get a better sense on his views I did a quick search this morning and found a bit more from the interviews in Wall Street Journal on-line edition and Financial Times.

These are the key predictions Mr. Greenspan makes:

The Future of Housing Market?

Possibility of far bigger housing price declines – possibly in double digits

More defaults on sub-prime mortgages

Increased pressure on consumer spending

The recession could be avoided, because of the strength in the economy

Couple months ago – put odds of national housing decline at less then 50-50

The reason Mr. Greenspan’s views are so important is because of the great weight the financial markets and the consumers place on them. I am concerned that consumers will be “spooked” even farther by these predictions, which will cause even more downward pressure on the housing prices and become a self-fulfilling prophesy. I am not an economist, but would like to know what you think the market will look like by spring of 2008.

Posted by Faina Sechzer - Princeton, Montgomery, Hopewell, NJ Real Estate Expert on 09/17/2007 07:05 PM

Comments (21)

princeton nj real estate trends

21 Comments on Extra, Extra, Extra … Alan Greenspan Predicts Housing Declines!

SEP

2007

I watched that interview yesterday too. I found it interesting that he realizes the effect he has but still feels that he has a right to earn a living. It's a controversial stance I wonder how it will be received.

Interesting, I hadn't heard the interview, but will do a little digging as most of Wall Street listens to him. Personally, I have learned to work in any market, it is not fun and it is harder but it is what it is, I wish I had a crystal ball. :)

People listen to what he has to say... But with his new remarks about going into Iraq primarily for oil, come on.

Christina - I guess we can't deny the guy making a living. But the wight of his words has magical powers in the world. The markets used to move many points up or down just guessing what he may say. Now that he really said it...we'll just have to wait and see.

Missy,

Mr. Greenspan is supposed to speak tonight again.

As for us in the real estate people -life goes on: people get married, new babies are born, people downsize, move to other jobs - the houses will be always sold . It just can be at lower prices.

Adam - I was surprised about the oil comment and also about his support of the war . My husband just walked in with Greenspan's new book "The age of turbulance". It will be interesting to find out more.

good post! excellent information. I look forward to your next post!

Hank - thanks so much. I hope I don't run out of ink. But please stop by again, I will do the same on your blog.

Faina--Good of you to post this information as I missed seeing this interview. I agree that many in the financial industry do listen to Alan Greenspan and have for years. Disconcerting that it is a 60 Minutes interview and hope all of his comments were fully represented not over edited. Will be watching for additional information now. Thanks for posting!

Teri - I think Mr. Greenspan will be on tonight again. on CNBC at 9pm Eastern time. Let's see what he comes up with today. Let me know what you think.

SEP

2007

Faina- One of our clients just told us about Greenspan's book today and about his speech. He then wanted to lower his price. I feel that if the media does not lay off of their doom and gloom we are in for a tough ride through to the end of 2008, here in Florida. The economists predict our prices have to still drop another 28%; that is devastating to our market here. Katerina

Hi Faina: I think it is foolish for anyone to disregard what Alan Greenspan has to say. I watched his entire interview tonight... one hour long... with Maria Bartiromo. I think it was on either CNBC or MSNBC. He is a brilliant man, and his knowledge seems boundless.

Missy: I think one thing Alan Greenspan could do when he talks about how home prices are going to drop... is to say that he is mainly talking about the specific areas of the country that have experienced double-digit price increases over the last three to five years. He should make that clear.

Those increases were very unrealistic, and somewhat fueled by frantic investors jumping on a thing that appeared too good to be true. Well... it was too good to be true, and values in those areas are experiencing "price corrections."

Part of the problem is, that when consumers hear all this stuff, they take it to mean that prices are falling in EVERY city in the country. Not a good thing.

Katerina - this is exactly my concern - so much about the market is perception and emotions. Information, such as provided by Mr.Greenspan can have a serious effect on people's psyche. On the positive side, I know that life goes on and houses will be sold, it's just a question at what price.

Karen - I watched the interview with Maria Bartiromo as well. No question - Mr. Greenspan has a wealth of knowledge. He reads 5-inch thick reports (all numbers) for relaxing on his coffee break.

I am not sure he was talking about prise drop in specific regions - I think he was talking about conditions nationwide.

I agree with Karen Stone, he needs to be more definitive with his area predictions! For example, I think that the states that "enjoyed" the most appreciation will probably be the hardest ones hit! I also think that my local area market is going to really start to get "on fire" again because we have a lot of jobs coming in with the military's BRAC (Base Realignment and Closures) program. My area is also still somewhat buffered with its prices because we are in the middle of the pricier areas of Virginia, DC, New York, and New Jersey! I really think that when these jobs start that will help us with our slump!

Faina--I did not see your comment until this morning but did see a quick clip in the morning news...Not enough to go on. Will have to search for more information on the internet. Did you watch?

Teri - I did watch last night. Mr. Greenspan did not talk about housing or even the economy so much. It was kind of more personal.

Faina, I just can't take any more Alan Greenspan. He ought to just keep his mouth shut. He caused almost all of the problem.

Let me see if I can recap it here in a few words. When he drove rates down to zero, mortgage rates followed. Home buyers (not the speculators) buy homes by how much they can afford to pay each month. As rates came down so did their payment amount. Prices rose because of this. The speculators saw what was happening and jumped in with both feet.

When Greenspan started raising rates, home buyers could no longer afford the houses at current prices. They stopped buying. The price appreciation then also stopped. Without price appreciation the "flippers" could no longer afford to hold their investment houses. They needed appreciation to pay holding costs and transaction costs. Flipping just didn't make sense anymore.

If you follow this and agree with my conclusions you see that Greenspan and Bernanke caused almost the entire problem. What a jerk to now "blame" everybody else, and to profit from it by giving speeches and writing books. I wouldn't give him a penny, and nobody in our industry should either.

I think you have inspired me to write a post on this. Thanks.

BillRoberts