This small blog entry was in the Marketbeat Blog section of The WSJ online this morning.
November 27, 2006, 9:59 am
Distant Early Warning
Posted by David Gaffen
The Federal Reserve had some idea of the problems posed by inflated housing values back in 2002, according to summaries of meetings held by the Federal Advisory Council, a group comprised of the Fed governors and a dozen representatives from regional and national banks. The FAC meets quarterly to discuss monetary policy, financial regulation and other matters — summaries are released with a three-year lag — and in December 2002, during Alan Greenspan’s tenure, the council was already warning of problems related to housing. Although the signs were limited, the summary shows that the Fed was already discussing the possibility of a housing bubble as much as four years ago, not long after the technology-stock bubble burst.
“Whereas evidence of a ‘housing bubble’ is anecdotal and regionalized, the Council does express concern that housing prices will not be able to rise at this pace forever,” the summary says. “Levels of home equity have been supported by these increased housing values but should those values begin to fall, lenders will be faced with higher loan to value ratios and with little room for the problems created by a potential downturn in the economy.”
Tom Schlesinger of the Financial Markets Center, which publishes the summaries on its Web site, notes that “this tidbit suggests that lenders gave the central bank a clear warning about the consequences of a hard landing for housing quite early in what was destined to become a long boom.”
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There was one comment posted in response by “Frank”:
More worry stuff on housing from Wall Street! If they sold houses and not bonds and equities, believe me, everything would be hunky-dory.
The actual bubble in is over-valued equities particularly in this global trade induced low visability era. Hard assets like real estate will more and more be trusted as the dot com bubble crash resonates in our memory.
Wall Street needs to “give it a rest” as there is no condition that warrants their continued attempts to induce hysteria over the real estate market.
“Frank” sounds like a spin doctor from NAR, to me.
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