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Tuesday, September 27, 2005
The Oregonian

Fed chief optimistic about homeowners surviving price drops

WASHINGTON -- While the high-flying housing market still holds risks, especially for the financially stretched, most homeowners are in a fairly good position to weather a shock if prices drop, Federal Reserve Chairman Alan Greenspan said Monday.

"The vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices," he said in remarks delivered via satellite to a banking conference in Palm Desert, Calif.

Greenspan, who has repeatedly warned about the potential perils if the housing market were to suddenly go south, also made clear that several factors -- risky mortgages and speculative activity in particular -- warrant close scrutiny.

The quicker turnover of second homes, such as for investment or vacation purposes, appears to be feeding the surge in house prices, Greenspan said.

Greenspan's latest thoughts on the housing market came after the National Association of Realtors reported that sales of previously owned homes in August posted their second-highest level on record. Home prices, meanwhile, increased by the largest amount in 26 years.