5 years after Greenspan’s “Froth not Bubble” comment

No bubble here.

Remember when Mr. Alan Greenspan, the darling of the MSM and Chairman of the Federal Reserve said there was no real estate bubble? That it was just “froth”? Yeah, it actually happened 5 years ago. Can you believe it? The OCRegister had this to say:

Welcome to National Froth Day, an annual event at Lansner on Real Estate, where we honor our inability to see a brewing bubble.

It was this day, five years ago, where then-Fed boss Alan Greenspan — and then-reigning “Maestro” of the economy — went to Congress and said he saw “froth” in housing, but not a bubble.

” … there can be little doubt that exceptionally low interest rates on ten-year Treasury notes, and hence on home mortgages, have been a major factor in the recent surge of homebuilding and home turnover, and especially in the steep climb in home prices,” his prepared testimony went. “Although a ‘bubble’ in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels.”

Well, home prices had been rising sharply. Measured by the national S&P/Case-Shiller index, home prices had just completed their 54th consecutive quarter of year-over-year gains at an eye-catching 15.68% rate as Greenspan testified that day. That gain proved to be the cycle’s pinnacle appreciation rate.

“… in recent years, the pace of turnover of existing homes has quickened,” Greenspan’s testimony reads. “It appears that a substantial part of the acceleration in turnover reflects the purchase of second homes–either for investment or vacation purposes. Transactions in second homes, of course, are not restrained by the same forces that restrict the purchases or 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 has customarily had in the past.

The apparent froth in housing markets may have spilled over into mortgage markets. The dramatic increase in the prevalence of interest-only loans, as well as the introduction of other relatively exotic forms of adjustable-rate mortgages, are developments of particular concern. To be sure, these financing vehicles have their appropriate uses. But to the extent that some households may be employing these instruments to purchase a home that would otherwise be unaffordable, their use is beginning to add to the pressures in the marketplace.

Nailed that one, right? After Katrina, the Gulf oil spill, and the Federal Reserve’s call of no real estate bubble, I don’t understand how anybody can think that the government is to be believed in. We need less government. It is that simple. Simple police powers. Fixing roads. The defense of this country. That’s all.


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