Former Federal Reserve Chairman Alan Greenspan said investors are realising that the drop in US house prices has yet to abate after the "shocker" of the subprime mortgage market slump.
"Markets are becoming aware of the fact that the decline in house prices is not stopping," Greenspan said in Oslo. "The subprime was a shocker because no one expected it. It was the weakest link in the international financial sector."
Home prices fell in a third of US cities last quarter as stricter lending standards caused a 14 per cent decline in sales nationwide, the National Association of Realtors said on November 21. Declines in sales and prices signal the housing slump that began in 2006 may extend into its third year, matching the slowdown 18 years ago that ended in the 1991 recession.
"I have no particular regrets," Greenspan said today. "The housing bubble is a not a reflection of what we did, as it is a global phenomenon."
Joseph Stiglitz, a Nobel Prize-winning economist, said on November 16 that there is a 50 per cent probability that the US will tumble into a recession after the "mess" left by Greenspan. The retired Fed chairman defended his record in a statement the same day, saying the criticisms were "inaccurate or incomplete."
Greenspan said on November 7 he predicts a "less than 50-50" probability of a US recession, reiterating previous remarks made in late October. Home prices in the world's largest economy haven't bottomed out, he said.
Greenspan, 81, is on a world tour to promote his memoir, The Age of Turbulence: Adventures in a New World.