From Reuters:
The worst of the U.S. economic adjustment to the housing slowdown is in the past, although housing starts and prices likely still have room to fall, former U.S. Federal Reserve Chairman Alan Greenspan said on Wednesday.
"The worst is behind us," he told a C$400-a-plate luncheon audience in Toronto via video conference, according to a source who was in attendance.
Greenspan had been expected to deliver his speech in person, but his flight was canceled due to snowstorms across much of eastern Canada and the United States.
There are some important points to remember here.
1.) As a former Central Banker, Greenspan is playing the, "I'm the voice of reason" card. He probably doesn't view his position as someone who should issue warnings of concerns. If memory serves, only did that one with his "irrational exuberance" statement in the mid-1990s.
2.) I disagree strongly with Greenspan's statement. Over the last two months, we've seen two waves of sub-prime mortgage (SPM) defaults and bankruptcies. The first included Ownit Mortgage which at the time was the 11th largest SPM lender. The second started at the beginning of this week when HSBC announced it was increasing its loan loss reserve and NEW said it was restating earnings for the last year and was reporting a loss for the latest quarter. UBS securities has said the 2006 SP mortgages were going into default at a record pace. The same article notes that delinquencies are above 2000 levels. That means delinquencies in an economic expansion are higher than delinquencies during the last contraction. Housing vacancies are over 2% -- the highest ever on record. None of these factors indicate housing is at a bottom.
I predicted a recession in 4Q 2006 or 1Q 2007 based on the assumption the housing market's problems would bleed into consumer spending. That assumption was wrong as housing problems have been contained so far. But it also looks like we have a long way to go before housing bottoms.
3 comments:
The timing of your prediction may be off but the logic seems sound. With so much of the economic growth in the last few years having been driven by real estate, it's unimaginable that the housing market could collapse without dragging down the economy as a whole.
The housing market is an oddity because even if the market is collapsing, people have to live somewhere. What I gather is saving the economy as a whole for now is that interest rates haven't gone up too significantly. People who bought houses to live in them can afford to keep living in them. So the people getting burned right now are the speculative buyers and the people who make money from building new homes.
Had interest rates gone up more substantially and begun to seriously damage people with ARM's the collapse would have happened much more quickly. So I think the trend is on par it's just playing out a bit slower.
It could very well be a timing issue rather than a thought process issue. I'm still shocked housing has not bled over into the rest of the economy.
I think housing is a "slow burn" and that with elevated invenstories in the dead of winter, and new housing coming on the market in Spring, which is traditional, we'll see a resurgence of bad news including empployment effects. People who couldn't sell at the price "they had in it" will try again in Spring and fail, then capitulate. That'll be when the "borrow and spend" system starts to break down, and the effects to be felt.
Greenspan is an ass, way over the hill, and no more than a cheerleader for throwing cheap money at problems.
Post a Comment