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Forget inflation, recessions, and stock market crashes. Hot Property aficionados want to know one thing about Alan Greenspan and one thing alone: What did he have to do with the housing bubble?
A new study by the Federal Reserve Bank of Atlanta—just published today—gives Greenspan a mixed report card on the housing bubble. Coincidentally, the paper was released on the same day that President Bush announced that Greenspan is stepping down Jan. 31 and will be succeeded by economist Ben Bernanke.
The paper somewhat contradicts Greenspan by concluding that the housing bubble is a national rather than a local phenomenon. Last May the Fed boss said, “We don’t perceive that there is a national bubble but it’s hard not to see … that there are a lot of local bubbles.”
The paper by Atlanta Fed staffers Marco Del Negro and Christopher Otrok uses advanced statistical methods to disentangle the importance of local vs. national factors in pumping up housing prices market by market. It concludes that in recent years, national factors have become more important than in the past.
Is easy monetary policy one of those bubble factors? The authors steer a complicated middle course on this one. First, they say, monetary policy has been only “slightly more expansionary” in the last few years than one might have expected. So the extra degree of easiness can’t by itself explain the bubble. On the other hand, they say it’s possible that housing would have inflated even with the ordinary amount of easing that would have been expected after the 2001 recession. In a classic double negative, they write:
Our result that the impact of monetary policy shocks on house prices was small in the recent period does not of course imply that the low interest rate environment experienced by the U.S. economy was not responsible for the housing boom.
Please, gimme a one-handed economist.
An interesting sidelight: One of the key analytical tools used in the paper was developed by none other than Ben Bernanke, who will be the next Fed chairman.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.