Greenspan's Thoughts

Greenspan's Thoughts  

 

Alan Greenspan issued bearish comments about the U.S. housing industry recently, saying that "prices of homes will continue to go down" until housing inventory starts to shrink.

 

The former Federal Reserve Board chairman, speaking at an investment conference in Bermuda, said "we're nowhere near" the point where inventories of new homes are set to drop, noting that home builders continue to discount new homes and add other inducements to try to cut their inventory.

 

During the housing boom, new-home builders were like the hosts with the hottest invitation in town.  They could raise prices with every newly opened phase of a development and display a "take it or leave it" attitude toward buyers.  Now, amid the downturn, homebuilders are the hosts everyone avoids.  In July, new-home sales nationwide were down 10% from the previous year, and the National Association of Home Builders expects them to continue falling until the second half of 2008.

 

Builders generally don't advertise price cuts, except for quick-move-in properties, lest they scare off nervous buyers and antagonize current owners who bought at higher prices. The closer builders are to finishing a development, the more likely they are to discount prices, either directly or through upgrades.

 

On a more upbeat note, Greenspan said that while the recent surge in oil prices is clearly having a "significant impact" on the economy, he has mixed feelings because the climb in prices is "forcing us to break our addiction to oil" at a time when the world is getting closer to the point where it is becoming harder to extract oil around the globe.

 

Repeating his recent comments, Greenspan said the odds of a recession are less than 50 percent, but higher than they were earlier this year.

 

What are your thoughts about what Greenspan says about the housing industry and the economy in general?  Leave us your comment below.  Note that an email address is required to comment, but we respect your privacy and your email address will NOT appear with your comment.