Greenspan Expects US Housing Slump To Deepen

Source : The Business Times, September 17, 2007

Mr Greenspan said he would expect 'as a minimum, large single-digit' percentage declines in US house prices from peak to trough, the Financial Times reported.

WASHINGTON - Former Federal Reserve Chairman Alan Greenspan said in an interview published on Sunday that the US housing slump is likely to deepen more than many analysts expect, recording as much as a double-digit drop.

Mr Greenspan said he would expect 'as a minimum, large single-digit' percentage declines in US house prices from peak to trough, the Financial Times reported. The former Fed chair said he would not be surprised if the the drop was 'in double digits'. The US central bank meets on Tuesday and is widely expected to cut benchmark federal funds rates by at least a quarter-percentage point to help the economy weather the housing downturn and a credit crunch.

Mr Greenspan said the Fed should be careful not to cut rates too aggressively because the risk of an 'inflationary resurgence' is greater now than when he was chairman, the newspaper reported.

However, Mr Greenspan also said on Sunday that US home prices have not yet hit bottom but turmoil in housing and credit markets does not look like it will produce a broader economic downturn.

'There is an underlying strength in the United States,' he said in an interview on the CBS programme 60 Minutes. And indeed, when you look around the world, even with this extraordinary credit problem, the economies seem to be holding up. But for the moment it does not look sufficiently severe that it will spiral into anything deeper.'

Recession probability 'more than 1/3'
Mr Greenspan said the probability of a US recession was now 'slightly more than a third', after he earlier in the year put the chances at one-third, The Wall Street Journal reported in its online edition on Monday.

He said there was a 'very large' inventory of unsold, newly built homes putting pressure on builders to sell them quickly, the Journal reported, citing an interview with him.

As a result, 'we have the capability of far bigger pricedeclines', which will pinch home equity, lead to more defaultson subprime mortgages and pressure consumer spending, hesaid. -- REUTERS