NYT: Most Homeowners Not Overly in Debt, Fed Chief Says

[DeepModem Mom]

Most Homeowners Not Overly in Debt, Fed Chief Says
By EDMUND L. ANDREWS
Published: September 27, 2005


WASHINGTON, Sept. 26 - With new evidence that the housing market remained red hot last month, Alan Greenspan said on Monday that the vast majority of homeowners are not yet stretched too thin.

But Mr. Greenspan, the Federal Reserve chairman, warned that the use of "exotic" mortgages could be pushing prices higher and inducing some homebuyers to take on too much risk.

Even as he warned about the increasing use of interest-only loans and no-money-down loans, which can become risky if interest rates rise or housing prices fall, Mr. Greenspan argued that only about 5 percent of all families have borrowed more than 90 percent of the value of their houses....

***

Though Mr. Greenspan said the vast majority of homeowners were not overextended, his comments on Monday were his sharpest warning yet about the proliferation of new loans that have helped push the household savings to a rate below zero. On Monday, the National Association of Realtors reported that the median sale price of existing homes hit a record $220,000 in August, up 15.8 percent from one year earlier....

***

With only a few months left before he is scheduled to retire in January, Mr. Greenspan seemed intent on defending his legacy against critics who contend that the Fed's policy of keeping interest rates low contributed to a speculative fever in the housing market....


http://www.nytimes.com/2005/09/27/business/27greenspan.html

[indepat]

1. If Greenspan says it, it is like money in the bank

[EST]

2. Ummm...which bank? Atd whose?

[buff2]

3. Hell no.....the RICH aren't having a rough time

It's the middle class,the poor and the working poor who are being hurt....so much so they are having to sell their homes because they can't make ends meet.

As always,Greenspan can't see that far through his coke bottom glasses.

[sando]

4. Maybe mortgages aren't overextended

But I betcha the credit card debt is staggering and if he isn't counting that aspect then he isn't giving the overall picture of most homeowners who may not have second or third mortgages on their homes yet but one day may in order to pay off some of their credit card debt.

[1932]

12. Yes.

If prices are going up 15.8% over the year, then the second mortage will be a smaller % of the house value over that time period (the profit from which you'd have to realize by selling your home). So that stat alone is interesting, but for the full picture, it would be interesting to know what people's total debt is relative to all their assets. I assume a lot of people are spending money based on the feeling that their rich because of their home's value, which is reason enough to want to know what kind of credit card debt (and other debt) that is encouraging.

[leesa]

5. Of course, this contradicts every report thus far. You need to poke

your nose out of your castle sometimes, Greenspan. People are crushed with debt.

[demnan]

6. Oh he knows that isn't true

he's just getting read to raise rates again, that's all.

[Javaman]

7. "homeowners are not yet stretched too thin. "

Seems as if they are predicting the inevitable.

colossal racist failure*.

[GeorgeGist]

8. So Mr. Greenspam...

as long as most homeowners can sell their homes to satisfy their other debts, everything is hunky-dorry.

[slackmaster]

9. The gap between haves and have-nots is widening

I have a friend who works as a collections counselor in the Auto Finance department of a large bank. She works with people who are in pretty sad shape. Some of them ARE homeowners but unable to get equity based financing, so they get stuck with a consumer auto loan at a ridiculous rate and non-deductible interest.

A lot of her customers who are having problems with car paymants admit that they are 2-3 months behind on their mortgage payments too.

Someone who does not own real estate is totally screwed buying a car unless they can manage to save up enough to pay cash.

[1932]

10. I'd like to see that stat (% borrowing vs home, percentile-wise)

based on various assumptions of home prices rising, staying steady and falling.


For example, if prices fell 5%, what percentage of Americans will have borrowed 90% of house value? If prices fell 20%, what percentage of Americans will have borrowed 90% of house value?

I suspect a lot of people are borrowing 100% against their home, but thanks to rising prices, that becomes 90% a year after remortgaging. In other words, people aren't borrowing fast enought to keep up with rising prices, but they are borrowing, and flat-line or decreasing prices will hurt them.

[Demeter]

11. "And I Am Marie of Romania"

--Dorothy Parker