Greenspan in 2004: fears of speculative bubble in housing prices exaggerated

New York Times October 20, 2004Mortgage Debt Not Big Burden, Greenspan Says:

Alan Greenspan on Tuesday defended one of the most tangible results of his tenure as chairman of the Federal Reserve Board: the big increase in homeowner debt.

In his most detailed discussion yet on the subject, Mr. Greenspan disputed analysts who worry that home buyers have become swept up in a speculative housing bubble that the Fed is partly responsible for creating. While he acknowledged that consumer debt has risen ”especially steeply” in the last five years, he said family finances were still in ”reasonably good shape.”

Mortgage debt and housing prices have both soared since 2001, in part because the Federal Reserve pushed borrowing costs to their lowest levels since the 1950’s. With interest rates now rising, a growing number of economists worry that many home buyers will face higher monthly debt payments in an economic environment that could cause house prices to fall.

In a speech here to a convention of community bankers, Mr. Greenspan said fears of a speculative bubble in housing prices were exaggerated, because people cannot buy and sell their own homes as easily as stock market speculators can buy and sell stock.

Funny thing is, Greenspan had a stellar reputation until this year. He isn’t looking so hot now that the consequences of those low Fed rates are becoming obvious.

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