Fed Seeks a Way to Deflate Housing Slowly

Published on:
12 September 2006 at 10:19 a.m. ET

Written by: Unknown Author –

http://www.insidearm.com/news/00001133-fed-seeks-a-way-to-deflate-housing-slowly/

By Irwin Kellner, MarketWatch

Now that Federal Reserve chief Alan Greenspan has effectively acknowledged that there may be a housing bubble out there, the big question is how will this affect Fed policy?

Prices of both new and existing homes combined are up eight percent over the past year — the biggest annual increase in 25 years.

For existing homes alone prices are 15 percent higher than they were last year at this time. In some parts of the country, the gains are even bigger.

Since personal incomes are growing much more slowly, the typical home now costs 3.4 times the average household’s annual income — the most in at least 25 years. From 1984-1999, this ratio averaged 2.8 times; in the early 1970s, when housing also boomed, this ratio was only 2.4.

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Fed Seeks a Way to Deflate Housing Slowly

Unknown Author

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