NEW YORK (Reuters) - Former Federal Reserve Chairman Alan Greenspan predicts U.S. house prices will begin to stabilize in the first half of next year, the Wall Street Journal reported on Wednesday.
Greenspan also offered a novel suggestion to bolster the housing market -- increase the number of potential home buyers by admitting more skilled immigrants.
“Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009,” he said in an interview with the Wall Street Journal, reported on the newspaper’s website on Wednesday.
But Greenspan cautioned that even at a bottom “prices could continue to drift lower through 2009 and beyond.”
An end to the decline in house prices, he explained, matters not only to American homeowners but is a necessary condition for an end to the current global financial crisis.
“Stable home prices will clarify the level of equity in homes, the ultimate collateral support for much of the financial world’s mortgage-backed securities,” he said. “We won’t really know the market value of the asset side of the banking system’s balance sheet -- and hence banks’ capital -- until then,” he said.
Greenspan’s forecast rests on two pillars of data.
One is the supply of vacant, single-family homes for sale, both newly completed homes and existing homes owned by investors and lenders. He sees that “excess supply” -- roughly 800,000 units above normal -- diminishing soon.
The other pillar is a comparison of the current price of houses -- he prefers the quarterly S&P Case-Shiller National Home Price Index because it includes both urban and rural areas -- with the government’s estimate of what it costs to rent a single-family house.
As other economists do, Greenspan essentially seeks to gauge when it is rational to own a house and when it is rational to sell the house, invest the money elsewhere and rent an identical house next door.
In the past, Greenspan’s crystal ball has been, at best, cloudy, the Wall Street Journal noted. He didn’t foresee the sharp national decline in home prices. But recently released transcripts of Fed meetings do record him warning in November 2002: “It’s hard to escape the conclusion that at some point our extraordinary housing boom...cannot continue indefinitely into the future.”
Greenspan is currently promoting his book, the paperback version of which is to be issued next month with an epilogue.
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