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From the Q&A session of Alan Greenspan’s July 24th Testimony before the Senate Banking, Housing Affairs Committee:
Colorado Senator Wayne Allard: "Chairman Greenspan, I think you would agree with me that housing has played a significant role in our economy historically, and it continues to play a significant role today. And these are not necessarily high-tech jobs. And I wondered if you could elaborate -- and you didn’t mention that -- make any comment in your remarks about housing. I just wondered if you could maybe elaborate on the trends for housing prices, spending on residential structures, and mortgage interest rates.
Chairman Greenspan: "Senator, I think one of the things that’s occurring in this country is the evolution of housing into a very sophisticated, complex industry, in the sense that we not only have got standard home building aspects of homeownership-related activities, but we're also beginning to find that as homeownership rises and as the market value of homes continues to rise, even in a period when stock prices are falling, we’re observing a rather remarkable employment of that so-called home equity wealth in all sorts of household decisions."
Indiana Senator Evan Bayh: "…with regard to Senator Allard’s question, my final question, with regard to home equity. This has been a good thing for the American economy and temporarily helpful in addressing the consumer issue and the current sluggishness. My question to you is, since it has historically been a significant percentage of household savings, is this a worrisome long-term trend, people drawing down their home equity substantially?"
Chairman Greenspan: "…If unrealized capital gains were declining, which is, of course, what happens when you extract equity from homes, yes, it would be a problem. But there is no evidence of that. Indeed, despite the fact of the significant extraction of home equity gains, the level of unrealized capital gains in homes continues to rise apace. So it's not a depleting asset, if I may put it that way. It could be, but fortunately it is not." |
