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Greenspan speaks on `housing bubble'

Federal Reserve Board Chairman Alan Greenspan testifies on Capitol Hill in February.On Tuesday Greenspan admitted that housing prices in the US have outstripped incomes in recent years, but said that data indicating a bubble in the market was `inconclusive.' PHOTO: AP

Federal Reserve policy makers don't have the data to accurately tell whether US home values are overheating, Fed Chairman Alan Greenspan said in a response to a lawmaker's questions about the potential for a housing bubble.

"House price increases have outstripped gains in income and rents in recent years," Greenspan wrote as a follow-up to his July 20 congressional testimony. While that "raises the possibility that real estate prices, at least in some markets, could be out of alignment with the fundamentals," he added "that conclusion cannot be reached with any confidence."

"House prices are difficult to measure given the enormous heterogeneity of the US housing stock" and because existing data "are not fully adequate," Greenspan said in the letter released today by Senator Richard Shelby, an Alabama Republican.

"Although taking a firm stand on the appropriateness of real estate prices is not possible, policy makers do need to take account of their influence on economic activity." The median selling price of an existing home in the US rose 8.7 percent in July from the same month a year earlier to a record US$191,300, the National Association of Realtors said in Washington today. The median price ranged from US$157,200 in the Midwest to US$275,000 in the West.

"There is no national price bubble in this country," said David Lereah, chief economist at the National Association of Realtors, in a press conference earlier today. "We have a supply problem. Inventories have been depleted, particularly in the West." The comments were received by Shelby's Senate Banking Committee on Aug. 17 and released today.

The responses expand on those Greenspan made in July as he delivered the central bank's midyear economic forecast in two consecutive days of testimony to the Senate Banking Committee and to the House Financial Services Committee. At the time, Greenspan said he expected a slowdown in consumer spending to be "short-lived" and that the Fed could continue to raise the benchmark interest rate at a "measured pace." The global economic recovery "has become both stronger and more sustainable" in the past year, Greenspan said. Even so, growth in Asia "appears to have braked sharply in recent months, as policy measures muffled the boom in the Chinese economy." Economic recoveries in Latin America and Canada "appear to be on track." In Japan, the country's economy "may finally be on its way to a self-sustaining recovery," Greenspan said. Growth in Japan and elsewhere in Asia faces "significant risks" from "the possibility of a hard landing in China," he said.
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