Greenspan: A housing bottom in 2009

Posted Aug 14th 2008 8:26AM by Douglas McIntyre
Filed under: Forecasts, Economic Data, Housing, Recession

Alan Greenspan loves talking to the press, perhaps more than he liked being the Federal Reserve chief. He recently did a long essay for the FT, and made similar comments about the financial system and housing to The Wall Street Journal. In his chat with the Journal, the old man said "Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009."

Greenspan's comments may help sell books, but there is little evidence that he is right.

Foreclosures are accelerating now, and with mortgage resets, it appears that prime mortgages are joining sub-prime mortgages as a source of defaults. Banks, which have taken hundreds of billions of dollars from the Fed, are not using that money to make new loans; they are using it to improve their own reserves against more mortgage-backed securities losses. Lending money for home loans comes with the risk that the value of those homes will keep dropping. Because of this more people find the price they can get for their houses is less than the balance of their mortgages.

In most recessions, unemployment trails the economic slowdown. Meaning that if this recession looks like the one in the early 1980s, unemployment could hit 8% or 9% of the work-force by the end of the year.

Under all of these circumstances, it would be almost impossible for the drop in home prices to be arrested within the next nine months.

Talking to the press may help Greenspan sell books whether what he says makes sense or not.

Douglas A. McIntyre is an editor at 247wallst.com.

Real Estate Troubles

**FILE** In this April 25, 2008, pedestrians are reflected below a UBS office building logo in New York. UBS AG, one of the hardest hit banks in the subprime mortgage crisis, said Tuesday, Aug. 12, 2008, that it had further losses and writedowns of $5.1 billion during the second quarter of 2008. (AP Photo/Mark Lennihan, file)

John Cryan, new CFO of the Swiss bank UBS, listens to a speech during a press conference announcing the 2008 half year result in Zurich, Switzerland, Tuesday, Aug. 12, 2008. UBS AG, one of the hardest hit banks in the subprime mortgage crisis, said Tuesday that it had further losses and writedowns of US$5.1 billion during the second quarter of 2008. (AP Photo/Keystone, Steffen Schmidt)

Marcel Rohner, Chief Executive Officer of Swiss Bank UBS, speaks during a press conference announcing the 2008 half year result in Zurich, Switzerland, Tuesday, Aug. 12, 2008. UBS AG, one of the hardest hit banks in the subprime mortgage crisis, said Tuesday that it had further losses and writedowns of US$5.1 billion during the second quarter of 2008. (AP Photo/Keystone, Steffen Schmidt)

** FILE ** A Jan. 30, 2008 file photo shows the logo of Swiss Bank UBS on Zurich's Bahnhofstrasse, Switzerland. UBS AG, one of the hardest hit banks in the subprime mortgage crisis, said Tuesday, Aug. 12, 2008 that it had further losses and writedowns of US$5.1 billion during the second quarter of 2008. Switzerland's largest bank, which also announced further management changes, said its net loss attributable to shareholders for the three months ended June 30 was 358 Swiss francs (US$331 million). (AP Photo/Keystone, Walter Bieri, File)

** FILE ** In this file photo from March 12, 2008, dark clouds hang above the Logo of the UBS (Union Bank of Switzerland) in Zurich, Switzerland. UBS AG, one of the hardest hit banks in the subprime mortgage crisis, said Tuesday, Aug. 12, 2008 that it had further losses and writedowns of US$5.1 billion during the second quarter of 2008. Switzerland's largest bank, which also announced further management changes, said its net loss attributable to shareholders for the three months ended June 30 was 358 Swiss francs (US$331 million). (AP Photo/Keystone, Alessandro Della Bella, File)

The headquarters of mortgage lender Fannie Mae is shown in Washington in this file photo from October 3, 2006. ..Fannie Mae, the largest U.S. home funding source, posted a much larger-than-expected second-quarter loss on August 8, 2008 and slashed its dividend more than 85 percent to preserve capital as home loan defaults accelerated in the bleakest U.S. housing market since the Great Depression. REUTERS/Jason Reed/Files (UNITED STATES)

Reuters

(FILES) People walk by a sign for Freddie Mac headquarters in this July 14, 2008 file photo in McLean, Virginia. Troubled mortgage finance giant Freddie Mac on August 6, 2008 reported an 821-million-dollar net loss in the second quarter as the US housing collapse further dug a hole in the company's finances. At 1.63 dollars per share, the loss was more than triple most analysts' forecasts of 53 cents per share. AFP Photo/Paul J. Richards (Photo credit should read PAUL J. RICHARDS/AFP/Getty Images)

AFP/Getty Images

LONG POND, PA - AUGUST 01: Michael McDowell, driver of the #00 Champion Mortgage Toyota, stands in the garage during practice for the NASCAR Sprint Cup Series Pennsylvania 500 at the Pocono Raceway on August 1, 2008 in Long Pond, Pennsylvania. (Photo by Drew Hallowell/Getty Images for NASCAR)

Getty Images

Labourers work at a condominium construction site in Escazu west of San Jose, August 1, 2008. The U.S. mortgage crisis has hit Costa Rica's once booming vacation home market, with sales plummeting as Americans dreaming of buying tropical getaways on the country's beaches struggle to find financing. REUTERS/Juan Carlos Ulate (COSTA RICA)

Reuters

Workers are pictured at a condominium construction site in Santa Ana west of San Jose, August 1, 2008. The U.S. mortgage crisis has hit Costa Rica's once booming vacation home market, with sales plummeting as Americans dreaming of buying tropical getaways on the country's beaches struggle to find financing...REUTERS/Juan Carlos Ulate (COSTA RICA)

Reuters

Tags: Alan Greenspan, AlanGreenspan, housing, inthenews, unemployment

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Reader Comments (Page 3 of 3)

8-16-2008 @ 1:21AM

Ronald said...

Mr Greenspan is retarded and went through special education along with Mr Bush.....LOL....!!!

8-23-2008 @ 7:01PM

Limoman said...

"UnEmployment reaches 8-9%? "
Sure, no wonder.. with 15 Million ILLEGALS taking all those Jobs our Kids used to get.. for summer and Part Time..

I used to work a PT job for yrs along with my Full Time Job.. But,they don't need to hire and pay white people $10/hr for PT as long as they can get These Minoritiy/Illegals to do it for $6 hr..

How come I don't See more Black Kids/Adults working Fast Food Places? and nothing but Mexicans? Ans? The Mexicans will take only $6 hr, since they have 10 living in a home all working and then they send 50% back to Mexico!

It's not Right!

8-23-2008 @ 7:06PM

Limoman said...

HOUSING BOTTOM? Already here my friend... The only houses Left to sell are ?

Big Rich Barns! $400K + PLACES..that Some towns Require to keep out the Working Class and Minorities!

Many towns won't let us Build Normal 3 bedrm Homes for $200k anymore..

8-26-2008 @ 1:44AM

ray said...

everyone thought that their houses were like a big piggy bank .they borrowed against it so they could buy ,buy ,buy.they all made their own mess. now they have to pay for their stupidity. they all need to stop crying and start living within their means.and stop looking for everyone else to bail them out.

8-26-2008 @ 12:14PM

Beltway Greg said...

Bashing Greenspan is ridiculous. You can blame him for not speaking out against the Bush tax cuts but in regard to all of the nefarious activities that have occurred in the wake of the subprime meltdown he doesn't deserve the criticism. If you were stupid enough to take money out of your home to pay for a trip to Maui or a new car shame on you. If you were stupid enough to believe that houses or condos were going to continue to march ever upward, you're the fool. If your credit card is maxed out you're the idiot. If you buy a new car every five years some goof standing on a course thanks you. He hasn't missed his tee time yet thanks to you. Is Greenspan perfect? No but not even the Maestro could've believed that folks like the Countrywide Sleeze and his FOA pals and S & P, and Moodys, and Citigroup and Bear Stearns and Lehman, and Merrill, and.......We've got a country full of stupid consumers. Maybe we need a good five year plan? The same people who blame Uncle Al also blame WalMart when some dope buys a gun and kills someone. Is he perfect, no far from it, but do you think a man who reportedly invests very cautiously would've told the banks to subprime our economy? Now yes, I believe he speaks far too much and in many ways his comments can still move the dow. But, if we silence everybody who could influence the dow that would mean we'd have to silence, Buffett, Soros, Bill Goss, Bill Miller, Sam Zell, etc.

Motto: "Consumer control thyself."

Beltway Greg

8-27-2008 @ 4:00PM

Noel Freedman said...

My having sold homes for 43 years, I'd like to remind Greenspan the real estate home sales runs on contingencies, and nationwide. When we run out of dominos to trip sale upon sale, then the market stops. When the lst time buyers were shut off due to price rise, wage staganate and mortgage applicant fraud, then the sale upon sale domino effect stopped; and by consequence, now the dominos are falling the other way. For someone to buy a foreclosure does not necessarily firm up a contingency, unless its another "sale" by the banks rotting foreclosures. This mess will take 10 years, if ever, to self-heal.

4-16-2009 @ 11:55PM

sarah said...

Christopher Cox needs to hand in his resignation. The so called Blueprint for a Financial Regulatory System will hand over to the Federal Reserve the last vestiges of America's sovereignty: Savings and Loans, state chartered banks, thrift and credit unions, the entire mortgage and insurance system as well as oversight of Payment and Settlements System of Wall Street. This proposed legislation amount to a coup D'état. This is very much like history! Hitler Third Reich! This bill also trashes what is left of the United States Constitution. DO NOT BE HUSTLED INTO PASSING THE LEGISLATION! WHAT WILL YOU SAY TO YOUR GRAND CHILDREN?

PLEASE READ International Currency Review, the writer is a Financial Advisor to Margret Thatcher. He has been right about the US Economy. His Intel states there is $14 Trillion held by CITIBANK held by the Same banksters that caused this financial debacle and preventing the Settlements, which the money sent over mainly from Europe is for.

This is a crime scene! Do not hand over America's future to this proposal to this intended full scale multilevel fraud. RE-In-ACT the GLASS STEAGALL ACT which Clinton and Greenspan abolished. This was put into place that we American's would never again have financial and insurance firms put us into a depression. We are the leader we have been looking for!!

DO NOT COMMIT NATIONAL SUICIDE! DO NOT BAIL OUT DERIVATIVES & HEDGE FUNDS.

DO AN AUDIT ON THE FEDERAL RESERVE and Depository Trust & Clearing Corporation worth 23,000,000,000,000 dollars in assets.

NO PUBLIC MONEY SHOULD BE TO BAILOUT ILLEGAL NOTES LIKE DERIVATIVES. SPECULATION ON MARKETS put tax on every transaction. Every trust endowment should be heavily taxed.

GREENSPAN NEEDS TO BE PUT IN JAIL! We need protectionism and recovery New Deal. Stop Foreclosures for 5 years, wipe out all derivatives. 1% tax on all stock exchanges, surcharge on all large trust, Vold of Lehmans, Hank Greenberg and all the other criminals make them disgorge what happened to the ill gotten profits. Maintain all human existence programs! Unemployment, headstart, Medicare, Social Security, etc...

What are we going to get from this Paulson BAILOUT? Hyper-Inflation! and collapse!