Greenspan Blames Speculators

In what I would term a "No Duh" speech today, Federal Reserve Chairman Alan Greenspan said speculators have been driving up prices in the housing market.

No Duh!

Transactions in second homes, of course, are not restrained to the same degree as sales of primary residences--an individual can sell without having to move. This suggests that speculative activity may have had a greater role in generating the recent price increases than it customarily has had in the past.

And he needed a report on the sale of previously owned homes to tell him THAT?

Here's the take on Greenspan's speech today from the Associated Press:

WASHINGTON - While the high-flying housing market still holds risks, especially for the financially stretched, most homeowners are in a fairly good position to weather a shock if prices drop, Federal Reserve Chairman Alan Greenspan said Monday.

“The vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices,” he said in remarks delivered via satellite to a banking conference in Palm Desert, Calif.

Still, Greenspan, who has repeatedly warned about the potential perils if the housing market were to suddenly go south, also made clear that there are several factors — risky mortgages and speculative activity in particular — that warrant close scrutiny.

The quicker turnover of second homes — such as for investment or vacation purposes — appears to be feeding the surge in house prices, Greenspan said.

“Speculative activity may have had a greater role in generating the recent price increases than it customarily has had in the past,” he said.

Greenspan’s latest thoughts on the housing market came after the National Association of Realtors reported that sales of previously owned homes in August posted their second-highest level on record. Home prices, meanwhile, increased by the largest amount in 26 years.

Sales rose 2 percent in August to a seasonally adjusted annual rate of 7.29 million units; that was second only to the all-time high pace of 7.35 million units in June.

Read the rest of the Associated Press story at this link.

Find the entire text of Greenspan's speech at this link.

— The Boy in the Big Housing Bubble