Long road to recovery for housing market: Greenspan

Business Materials 2 October 2007 06:02

( Reuters ) - The housing market has a long way to go before stabilizing after the subprime crisis, spelling bad news for consumers in the world's biggest economy, former Federal Reserve chief Alan Greenspan said on Monday.

Greenspan, who has been outspoken throughout the credit crunch, said more house price declines were likely given a surfeit of supply but pointed to signs the lending crisis could be coming to end as demand for more risky assets grows.

However, he warned any speculative market fever must be allowed to run its course to enable a full recovery.

"As in similar situations of inventory excess, I would expect home price declines to continue until the rate of inventory liquidation reaches its peak," Greenspan told an audience at Reuters in London.

"There is little relevant American history to guide us in judging the ultimate extent of home price decline or the timing of a new price recovery, or by extension, the economic impact on the rest of our trading partners."

The U.S. housing market remains extremely fragile after a crisis in low-end mortgage borrowing spread fear of a global economic slowdown and put a squeeze on lending conditions.

The Fed has slashed U.S. interest rates by half a percentage point to try and stabilize markets and encourage banks to increase their lending to each other.