... is not a bubble in new home prices. What one hopes Greenspan is concerned about is the cycle of cash-out refi's which support this economy. If home prices were even to stop appreciating - much less decline - every stock which depends on consumer discretionary spending would plummet, not just the homebuilders. Retailers, restaurants, travel,would all go down the tubes and take everything else with them. The fact is, this economy probably can'e accomodate anything but an "accomodative" FED policy.
People have been concerned about cash-out refi's for over 10 years now. While I know there are people who are lousy money managers, most are not. I can't tell you how many cars I sell to people who borrow against their house. Why? The tax advantage of federal deductibility of interest. It's cheaper than using the car as collateral. People are paying for college, starting businesses, and even investing with the proceeds of mortgage loans.
When you can get a 30 year loan at 5.75%, if you deduct 1.61% for tax advantage (28%) and average 4% appreciation, (inflation) The net cost of money is essentially zero.
It doesn't take a rocket scientist to figure that one out.
I agree with your comments, but the �accommodative� stance of the FOMC does not promote sustainable economic growth, and creates an expanding imbalance in the economy. The �accommodative� stimulus should be used like medicine, not an everyday product. And the cash-out re-fi aspect should be a byproduct of �accommodative�, not the legs that support the economy.
Here�s what Federal Reserve Governor Susan Bies said today; �You start a chain where you lend because values are going up, which provokes more demand for properties, which raises property values, and at some point it busts".