With new evidence that the housing market remained red-hot last month, US Federal Reserve Chairman Alan Greenspan said on Monday that the vast majority of homeowners are not yet stretched too thin.
But Greenspan warned that the use of "exotic" mortgages could be pushing prices higher and inducing some homebuyers to take on too much risk.
Even as he warned about the increasing use of interest-only loans and no-money-down loans, which can become risky if interest rates rise or housing prices fall, Greenspan argued that only about 5 percent of all families have borrowed more than 90 percent of the value of their houses.
"The vast majority of home-owners have a sizable equity cushion with which to absorb a potential decline in house prices," he said.
Greenspan told a banking conference on Monday that speculation in the housing market may have spilled over into the mortgage markets as more and more people use interest-only loans and other techniques to buy homes they might otherwise be unable to afford.
"The dramatic increase in the prevalence of interest-only loans, as well as the introduction of other, more exotic forms of adjustable-rate mortgages, are developments that bear close scrutiny," he said.
Though such loans have appropriate uses, he said, they could also provide a way for marginally qualified buyers to borrow heavily and buy homes at inflated prices.
"In the event of widespread cooling in house prices, these borrowers, and the institutions that service them, could be exposed to significant losses," he said.
Though Greenspan said the vast majority of homeowners were not overextended, his comments on Monday were his sharpest warning yet about the proliferation of new loans that have helped push the household savings to a rate below zero. On Monday, the National Association of Realtors reported that the median sale price of existing homes hit a record US$220,000 last month, up 15.8 percent from one year earlier.
Sales of existing homes climbed 2 percent last month and reached an annual rate of 7.29 million. That was just short of the record 7.35 million, set in June.
Analysts said there were some hints that the hot housing market may be cooling just a bit. The inventory of homes for sale edged up last month, and the amount of time that houses in many cities are sitting on the market is somewhat longer than earlier this year.
But many economists contend that a housing bubble is evident in many parts of the nation, especially around big cities on the East and West coasts, and that housing affordability has declined to an unusually low level even though mortgage interest rates remain at nearly historic lows.
Greenspan's message on Monday was twofold: first, that the use of exotic new mortgages could be aggravating the run-up in prices and inducing some families to take on too much risk; second, that the finances of most households are still on solid ground.
Citing new data collected by the Federal Reserve, Greenspan noted that there was little correlation between states with the biggest increases in prices and states with the highest concentrations of multiple loans, called "piggy back" loans, that allow people to borrow almost the entire purchase price of a home.
Greenspan predicted that savings would climb again when interest rates rise and the housing market cools. Many analysts agree, but caution that spending could slow at the same time.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique