Friday Letter The maestro on housing

Comments made yesterday by Alan Greenspan about the US housing market offer an interesting view on what signs may indicate a stabilizing real estate market. 

Greenspan, the former chairman of the US Federal Reserve, said in comments yesterday before an energy conference crowd in Houston that he believed US housing prices will not stabilize until the pace of construction falls enough to facilitate the liquidation of excess home inventory.

Greenspan’s comments were made during an onstage interview at CERAWeek 2008, an annual gathering for the global energy industry. His comments touched in energy policy but also covered the global economy and the role that the US sub-prime mortgage meltdown has played in the recent economic slowdown.

Greenspan, who led the Fed from 1987 to 2006, said he felt housing prices still have a “ways to go” before they reach a stabilization point. He said the unfolding crises tied to the securitized mortgage market would likely not end until housing prices stabilize.

While Greenspan noted that the halt in originations for sub-prime and so-called “Alt-A” mortgages had removed “new tinder” from the crisis, he said that the large inventory of unsold and partially built homes would continue to weigh on values. He said continued home construction would slow the process of reducing inventory.

“The sooner we get the rate of construction down to the point where we liquidate the inventory, the better for everybody,” he said.

In fact, according to government figures, housing starts in the US are at the lowest level since 1991. Fewer building permits have been issued recently than at any time since 1993.