Mortgage Debt Not Big Burden, Greenspan Says
By EDMUND L. ANDREWS
Published: October 20, 2004
WASHINGTON, Oct. 19 - Alan Greenspan on Tuesday defended one of the most tangible results of his tenure as chairman of the Federal Reserve Board: the big increase in homeowner debt.
In his most detailed discussion yet on the subject, Mr. Greenspan disputed analysts who worry that home buyers have become swept up in a speculative housing bubble that the Fed is partly responsible for creating. While he acknowledged that consumer debt has risen "especially steeply" in the last five years, he said family finances were still in "reasonably good shape."
Mortgage debt and housing prices have both soared since 2001, in part because the Federal Reserve pushed borrowing costs to their lowest levels since the 1950's. With interest rates now rising, a growing number of economists worry that many home buyers will face higher monthly debt payments in an economic environment that could cause house prices to fall....
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Dean Baker, director of the Center for Economic Policy Research, a liberal research group in Washington, has long argued that a housing bubble is under way and that household finances are shakier than they appear.
Mr. Baker said that homeowners' equity is a significantly smaller percentage of the value of their homes than it was in the 1970's, even though the population has become older and should have accumulated greater assets and built up a higher net worth....
http://www.nytimes.com/2004/10/20/business/20debt.html
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