| Greenspan predicts housing bubble wont last { May 21 2005 } Original Source Link: (May no longer be active) http://www.boston.com/business/globe/articles/2005/05/21/greenspan_home_price_speculation_cant_last/http://www.boston.com/business/globe/articles/2005/05/21/greenspan_home_price_speculation_cant_last/
Greenspan: Home-price speculation can't last By Bloomberg News | May 21, 2005
NEW YORK -- Some regions of the US housing market show signs of unsustainable price speculation and ''froth" from rapid sales, Federal Reserve chairman Alan Greenspan said. The surge may ease as homes become less affordable, he said.
''It's pretty clear that it's an unsustainable underlying pattern," Greenspan said after a speech to the Economic Club of New York. ''People are reaching to be able to pay the prices to be able to move into a home."
''There are a few things that suggest, at a minimum, there's a little froth in this market," Greenspan said. While ''we don't perceive that there is a national bubble," he said, ''it's hard not to see that there are a lot of local bubbles."
Combined sales of new and existing homes, town houses, and condominiums set four records in each of the past four years, aided by low mortgage rates. The median price of a previously owned home in March rose 11 percent from a year earlier, the biggest 12-month gain since December 1980, according to the National Association of Realtors.
A national bubble is unlikely because the real estate market is composed of regions with different pricing trends, making a collapse that damages the overall economy unlikely, Greenspan said. Home purchases and sales have high transaction costs, making it hard to speculate; most people buy homes to live in, he said.
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