In light of thoughts offered up on the nation’s housing market yesterday by former Fed Chief Alan Greenspan on Meet the Press (as noted here) and recent revelations of just how underwater the nation is housing-wise (as detailed at Calculated Risk here), it seemed like a good idea to search the Federal Reserve archives to see what “The Maestro” had to say about housing a few years ago.
Let’s see, today we have:
But, back in this September 2005 speech, the outgoing Fed Chief had this to say:
In summary, it is encouraging to find that, despite the rapid growth of mortgage debt, only a small fraction of households across the country have loan-to-value ratios greater than 90 percent. Thus, the vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices. In addition, the LTVs for recent homebuyers appear to be lower in those states that have experienced the most explosive run-up in house prices and that, conceivably, could be at risk for the largest price reversal. That said, the situation clearly will require our ongoing scrutiny in the period ahead, lest more adverse trends emerge.
It’s fair to say that those “sizable equity cushions” were not nearly as effective in countering a decline in house prices as once believed. Of course, Greenspan retired four months later…
Tim Iacono
Iacono Research.com
Tim Iacono is the founder of Iacono Research which provides market commentary and investment advisory services specializing in macroeconomic analysis and commodity based investing. He also writes the popular blog The Mess That Greenspan Made.
