Alan Greenspan was over at The Wall Street Journal playing his wise old man act. He is ancient, but he may also be dumb.
Greenspan made the point that housing should bottom in the earlier part of 2009, but his reasons run counter to almost all of the recent data.
Late word is that July foreclosures were up 8% from June, according to RealtyTrac. The figures were up 55% from a year ago. The more depressing news was that one in every 464 U.S. households received a foreclosure filing during the month.
Making the argument that a housing recovery can be built on these trends is nearly impossible. Greenspan must either be a sophist or a fool, but his view of the matter does not hold water.
To believe that housing is going to get better is to believe that credit will not stay tight and that employment will improve. Making either case is climbing a wall of ice. Banks are keeping all the money they get from the Fed so that they can maintain reserves. Prime mortgages are resetting, pushing defaults in that sector toward subprime figures.
Unemployment usually lags the negative growth rate in a recession. If this downturn looks like the one which began in 1973, the jobless rate will hit 9% or better. A housing price recovery cannot be built on the back of that.
Bank stock prices are forecasting a sharper drop in mortgage-backed paper, one which will last into 2009. For that to happen the home price and mortgage situation has to weaken much further.
Greenspan would be smart to retire while he is still behind.
Douglas A. McIntyre
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