Homeowners Could Handle Price Drop

The Arizona Republic reports that Fed Chairman Alan Greenspan said that most homeowners are in a fairly good position to weather a shock if housing prices fall.

"The vast majority of homeowners have a sizable equity cushion which to absorb a potential decline in house prices," Greenspan stated yesterday via satellite to a banking conference in Palm Desert, Calif. Less than 5 percent of home borrowers were highly leveraged, according to one measure, he said. Greenspan added that the quicker turnover of second homes, such as for investment or vacation purposes, appears to be feeding the surge in house prices.

Greenspan's comments came after the National Association of Realtors reported that sales of existing homes in August posted their second-highest level on record, and while home prices increased by the largest amount in 26 years. The median home price in the nation sits at $220,000, a gain of 15.8 percent from the same month a year ago. That was the biggest 12-month gain since July 1979.

Greenspan did, however, still caution about "froth" developing in some local housing markets that may be driving house prices to "unsustainable levels," such as California. More...