Housing Market Slippage?

Dodging the incessant rain showers this past weekend, I went for a walk through my Lowell neighborhood and observed that For Sale signs were nearly as common as dandelions on front lawns. My guess is that there’s no great increase in the number of properties that are being placed on the market but that the homes that are for sale are staying on the market for much longer. Just last week, Alan Greenspan, chairman of the Federal Reserve, said that the red-hot housing market is unsustainable. Greenspan hesitated to call it a national bubble (that presumably could burst). Instead, he used the word “froth” to describe the numerous “local bubbles” around the country. He also said that since prices have increased so much, only those who purchase just before the inevitable downslide begins will be harmed. The economist Paul Krugman presented a bleaker picture, however, asserting that the low interest rates that are sustaining such high real estate prices are kept low by the Chinese government which last year bought $200 billion worth of dollars and this year is on track to buy $300 billion – that’s BILLION. Krugman argues that should China take all of its money elsewhere, the ever increasing US budget deficit will cause interest rates to skyrocket with dire consequences for many new homeowners. Sounds ominous. On the other hand, if it would ever stop raining maybe home buyers will venture out and get house sales moving again.