Bubbling or Frothing?
Last Thursday, Alan Greenspan testified before the Joint Economic Committee of Congress. In his statements, Greenspan referred to the US economy as being on “reasonably firm footing”, but indicated that interest rate increases would probably continue to keep inflation in check.
Other issues identified included: imbalances and uncertainties regarding the yawning US budget and trade deficits, slow wage growth, rising oil prices, and concern that housing prices are overvalued across the nation.
However, during the same week, Greenspan also “asserted there was no national housing bubble, but that the overheated housing market is more properly described as ‘froth’.”
“There do appear to be, at a minimum, signs of froth in some local markets,” Greenspan said. He added, “the apparent froth in the housing markets may have spilled over into the mortgage markets.” And the mortgage and housing situation is “clearly without recent precedent.”
All that being said, are we bubbling or frothing?
I believe that even if mortgage rates begin to go up, the average American will be more likely to invest in a home before investing in other things. Along with the real estate boom across the country, there has been an increase in available information educating consumers of the benefits of homeownership versus renting.
Boom or bust, the average American aspires to homeownership and I don’t think that’s likely to change.