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Blast from the Past

Some excerpts from a Bloomberg news story, June of 2003:

Fannie Mae Chief Executive Franklin
Raines, who runs the biggest mortgage portfolio in the world, said
the continuing rise in housing prices won't end in a bust like the
stock market of three years ago.

“We do not see any sign of housing price decline nationwide,
let alone the bursting of a bubble,'' Raines said in an interview
with Bloomberg News in New York.


Housing has been one of the few bright spots in the U.S.
economy as unemployment rose to the highest level in almost nine
years and the country struggled to recover from recession. The
lowest interest rates in more than four decades boosted home sales
and mortgage-loan refinancing to record levels, putting cash in
consumers' pockets. Fannie Mae benefited as debt backed by home
loans surged and home prices rose.


There hasn't been a nationwide decline in home prices since
the Great Depression, though there are signs that job losses and
slow economic growth are taking a toll, Raines said. Prices are
falling in “a lot of the old Internet cities'' such as San Jose,
California, and Seattle, he said.

Dean Baker and the Economist look a little smarter:

Mortgage rates at their lowest levels since the Kennedy
administration have exacerbated the “fat'' in housing, Baker
said. An increase in the cost of 30-year fixed rate mortgages to
near 7 percent from 5.26 percent today would burst bubbles where
they exist, he said.

“Housing has helped sustain the economy so far as we've had
growth, and when it does burst that could have a big effect'' on
prospects for growth in future quarters, he said.

A study by The Economist predicted a “property price
bubble'' in the U.S. and the U.K. would burst in the next few
years, leading to consequences “far nastier'' than seen from the
plummeting stock market of 2000 and 2001.

“Some people say, well, they had a housing bubble in
Ireland, why can't we have one in the United States?,'' Raines
said. “That's like saying we had a housing bubble in
Massachusetts. You can, but you can't work up one in the whole
United States just like you probably can't in the whole of

Here are Greenspan and Shiller:

Fed Chairman Alan Greenspan in February called a nationwide
housing bubble “quite unlikely,'' in part because there isn't a
national housing market. Comparisons to the stock market aren't
justified since most people must live in their homes and house
transaction costs inhibit speculation, he said.

Robert Shiller, who predicted the 2000 stock market bubble
with his book “Irrational Exuberance,'' said he'd only predict a
nationwide housing slump if a worldwide economic slump “kills''
consumer confidence. Only some “high-flying'' cities like San
Francisco, Denver and Boston are at risk of price depreciations,
and the chances of declines in those regions are less than a
third, he said from his office at Yale University in New Haven,

“In the last bubble in 1990 the declines were preceded by a
slowdown and accelerated by a slowing economy, and the slowdown
might be a harbinger of a drop in some places,'' Shiller said.
“Even so we predict increases everywhere. It would be quite
daring to predict'' a nationwide housing bubble, he said.


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