Housing Groups Refute Housing 'Bubble'

July 22, 2002

Laud Greenspan Testimony

WASHINGTON ? Federal Reserve Board Chairman Alan Greenspan's testimony before Congress last week refutes, once and for all, the existence of an alleged housing market "bubble," said chief economists of the NATIONAL ASSOCIATION OF REALTORS® and the National Association of Home Builders, two trade groups that collectively represent more than 1 million professionals from all walks of the housing industry.

"The time has come to put this issue to rest," said NAHB Chief Economist David Seiders. "The nation's home builders have said it, the Realtors have said it, and now Alan Greenspan has said it once again, in no uncertain terms: There is no such thing as a current or impending house price bubble."

Asked about the issue during his testimony, Greenspan said, "We've looked at the bubble question and we've concluded that it is most unlikely." He attributed recent "sizeable gains" in home prices to "the effects on demand of low mortgage rates, immigration and shortages of buildable land."

Given the local nature of real estate, NAR Chief Economist David Lereah said, it's possible for prices to deflate on a local basis, but a "pop" simply isn't in the cards. He noted that, even during recessions and periods of declining home sales, the national home price has risen every year. "Over time, the typical home value appreciates at the general rate of inflation, plus one- to two-percentage points," he said.

Greenspan: Housing Market Admirable

Acknowledging the "stabilizing force for the overall economy" that residential construction and related consumer outlays provided during last year's downturn, Greenspan noted in his testimony that the U.S. housing market continues to perform admirably in the evolving recovery period.

Echoing the Greenspan's apparent confidence in the industry when he predicted "reasonably strong housing demand," Seiders and Lereah affirmed, "The housing market is fundamentally sound: we have a lean inventory of homes, historically low interest rates, good consumer confidence and strong demand from a growing population. The supply/demand situation means we can expect healthy price appreciation to continue."

The housing groups applauded Greenspan's leadership of national monetary policy and his wisdom in lowering interest rates, which has unquestionably helped housing support the economy during the recession and the early stages of recovery.

Source: National Association of Realtors

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