Greenspan expects big drop in US home prices

Alan Greenspan, interviewed by the FT ahead of the release of his new book, said that he expects housing prices to drop sharply from "current levels." There is still some hope in the market, perhaps misplaced, that the sharp fall in homes values will be largely restricted to the subprime market.

Greenspan's comments are unlikely to help shares of beaten down homebuilders such as Lennar (NYSE: LEN). The FT writes that Mr Greenspan said he would expect "as a minimum, large single-digit" percentage declines in US house prices from peak to trough and added that he would not be surprised if the fall was "in double digits".

If Greenspan is right, and he often is, the fall-out in home devaluations would likely be fairly deep and lead to a long recession. A very sharp drop in home values, coupled with rising consumer credit card debt, and high oil prices would likely be a set of straws that would break the back of US consumers.

Greenspan's opinion has not been echoed by current members of the Fed. Perhaps they are hoping against hope that a rate cute will save the US economy from negative growth.

But, as each day passes, Greenspan's view look more likely to be true.

Douglas A. McIntyre is a partner at 24/7 Wall St.com.