Housing Market Will Remain Weak

Sep 13th, 2007 @ 8:23 PM by MortgageMentor

Alan Greenspan, who has been called the “greatest central banker of all time,” is the former chairman of the Federal Reserve. He left that position in 2006, and was replaced by Ben Bernanke.

Greenspan’s interview with 60 Minutes is going to be aired on Sunday night. Ironically, his new book is coming out on Monday. Funny how the Big Guys can get free publicity from shows like 60 Minutes.

Anyway, all of this is to say that during his term as head Fed, there were tons of loose and questionable lending practices going on in the mortgage world. These have left many unsuspecting mortgage holders in hot water. These are innocent homeowners who just wanted to buy some property, and were happy to be able to do it at the subprime rates. Most of them are now holding adjustable rate mortgages that could potentially cause them to owe payments they cannot afford.

Greenspan, the financial genius, the most influential top dog in Fed history, says that he didn’t realize that it would cause problems.

Critics feel that Greenspan actually helped create the housing bubble, and in fact he did push adjustable rate mortgages during his term. But did Alan Greenspan actually know the practices that were going on at the lender level? Was it his responsibility to know? Was he too busy to look into it? Was he living in his own sort of bubble?

The fact is that, at a time when we were headed into a serious recession–perhaps even a depression–Greenspan rescued us. Now, the rates that he lowered might have been left low for too long, but that is largely Monday morning quarterbacking. No one criticized the move at the time.

Now the rates might need to be lowered once again, according to Greenspan. That’s going to be up to Bernanke, but he operates less off of gut instinct and more off data. So he wants to wait on the data to show him that we need lower interest rates. By then it might be too late. Six months from now, with no changes, the housing market will be in serious trouble.

Regardless of what Bernanke decides to do, the economic atmosphere is different now that it was when Greenspan was calling the shots. For one thing we’ve sent all our manufacturing jobs and a large percentage of our service jobs overseas. So our economy is weak, and will get worse, or rates will rise. No matter what happens, the housing market is going to remain weak for some time.