Greenspan Gives Guidance on Housing Market


Alan Greenspan, the controversial former Fed Chairman, in an interview by the Wall Street Journal’s David Wessel gave us a few pearls of wisdom to ponder about the state of the housing market.

He starts out with a prediction calling for a stabilized market by summer of 2009. Greenspan admits depending on the size of the bubble certain location will see continued price declines after his deadline. But for the majority of markets, a never-ending price depreciation will end about a year from now…and I happen to agree with him on this point.

Denver, where I live, was first into the bubble (a smallish bubble at that) and will be the first out. We are already seeing signs of this as the Case-Shiller Index for Denver was up for 2 months in a row in May and June. However, Phoenix, Las Vegas and other markets like them were late to the bubble party and saw bigger price appreciation, so they won’t hit Greenspan’s target but will follow soon after.

Greenspan bases his prediction on supply versus demand statistics as well as rent versus own price corrections. He states it best by saying,

“It’s the imbalance of supply and demand which causes prices to go down, but it is ultimately the valuation of the commodity which tells you where the bottom is.”

He uses the current figure of 800,000 vacant homes and figures it will take a year to liquidate enough of those homes at lower and lower prices, that an equilibrium will be hit when investors feel the desire to hold on to the home rather than sell…put another way, when it costs more to rent than to own.

I like this dual methodology for analyzing the bottom in the housing market. Historically, home owners had to see a benefit from owning versus renting and landlords needed a premium to stay landlords. Greenspan knows a “corrected” market will return us to that state. He also informs us the number of households created in a year in the US today is 800,000…the same number as vacant homes, so the supply/demand component is covered too.

If prices could drop fast enough to make a mortgage payment less than rent for the same house…violia…the bottom is reached.

He warns against too much legislation, tax incentive, or bail out activity which could slow the speed in the drop of housing prices. Subsequently, he voiced he dissent on the GSE bailout by saying,

“They should have wiped out the shareholders, nationalized the institutions with legislation that they are to be reconstituted — with necessary taxpayer support to make them financially viable — as five or 10 individual privately held units,”

Greenspan fears a huge taxpayer bill coming due for Fannie Mae and Freddie Mac thanks to Hank Paulson’s new law…and I share his concern.

Wow…I agree with Alan Greenspan a lot here…I’d better go lay down.

About Author

Rob K. Blake, a 15 year veteran of the mortgage industry, is a renowned public speaker, author, and former radio talk show host. His blog,, is dedicated to educating mortgage consumers, mortgage providers, and investors about both mortgage and housing markets.


  1. Congress needs to move out of the way? Just give the money back to homeowners and the result is much better. But then someone does not get our money to use as they fit. A few more specials for the groups that are in favor. its all borrowed money at that. You are right, lets get to the bottom. Do not ofrget about creating jobs?

  2. Based on the number of buyers we are seeing coming into the market and the HUGE rental rate increases we are seeing I think we are getting really close to the bottom in Chicago. When renters get hit with large increases they look at their options and buying starts to become much more attractive. So prices coming down helps, but so do rental increases.

  3. Some areas, like Central PA and Central VA, don’t seem to have been as poorly affected by the “burst bubble,” and might not have anything to recover from. Anyone else agree? Texas is another area that doesn’t seem to have been as negatively affected by the bubble burst.

  4. Eric: The faster we hit bottom the more jobs we’ll create….lenders and realtor employment will go back up along with a slew of other supported industries.

    Ken: Chicago is very similar to Denver in this respect. Rents having been increasing in many areas for the last 2 years…combine that with a speculative bubble leak over the same time period bring prices down…we hit equilibrium this Summer…rather than next. Summer 2009 will be business as usual for Chicago and Denver…declining days of the market, price stability, loose lending requirements….the whole shebang.

    J. Bentz: Yes it there was no bubble to burst…that market according to Greenspan would have held the norm of renting costing the consumer more than owning…nothing to correct if that is the case.

    Cedar City: Thanks……I do try.


  5. It seems here in Denver that they’re building houses faster than people can buy them up. Whole subdivisions going up without people to fill them. It really is driving market price for housing into the ground.

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