Worst of Housing Slump May Be Over, Reports Alan Greenspan

The Palm Beach housing market may not be the only sector rising out of its slump.

None other than former Federal Reserve Chairman Alan Greenspan said last week that the entire national real estate market appears to be emerging from its recent travails and the “worst may well be over.”

“I suspect that we are coming to the end of this downtrend, as applications for new [regular and Florida mortgages], the most important series, have flattened out,” Greenspan said at an event in Calgary, Canada, sponsored by BMO Financial Group.

“There is a good chance of coming out of this in good shape, but average housing prices are likely to be down this year relative to 2005. I don’t know, but I think the worst of this may well be over,” he added.

Florida home mortgage and country-wide applications jumped in the latest week bolstered by increases in refinancing and new home purchases, as long-term rates decreased, according to data from the Mortgage Bond Association.

Greenspan’s comments suggest a more sanguine view of the U.S. housing market than that offered by current Fed chairman Ben Bernanke, who said last week that the housing market was currently undergoing a “substantial correction.”

Some bond market participants in London said on Monday that Greenspan’s remarks helped drive bond prices down further and yields higher, while obscuring concerns surrounding the news that North Korea said it safely and successfully conducted an underground nuclear test over the weekend.

Greenspan said the fall of communism, not sharp interest rate cuts by the Fed, was behind the housing boom in the early part of the decade. Cheap labor flooding into the West after the fall of the Berlin Wall had a disinflationary effect, causing bond yields to fall and house values to rise, he said.

But the time for hope may finally be upon us. New first-time buyers are entering the market this quarter, applying for a Florida mortgage and finding great deals as they do.