After Years Of Inaction, He'll Talk The Bubble Down
Alan Greenspan is talking about housing again. "Fed economists have determined that second home purchases are partly responsible for driving up the ratio of sales to the existing housing stock, Greenspan said. The Fed chairman said the more rapid pace of second home purchases may reflect speculation in some markets."
"'When you get speculation, there are only a couple of ways for it to end, and they are not good,' said Jay Mueller, senior portfolio manager at Wells Capital Management. 'We are nowhere close to income growth matching house price appreciation.'"
"There's a risk that consumer consumption may decline if the housing market slows, Greenspan said. 'If it occurs, and eventually it will, it will reduce the fairly large and still accelerating degree of extraction of equity from existing homes. This has been a major force in financing consumption expenditures.'"
Here's AG on the GSE's. "As Fannie and Freddie increase in size relative to the counterparties to their hedging transactions, the ability of these GSEs to quickly correct a misjudgment in their complex hedging strategies becomes more difficult, especially when vast reversal transactions are required to rebalance portfolio risks."