A day after a Federal Reserve Chairman Alan Greenspan confidant Federal Reserve Board Governor Donald L. Kohn dispelled forecasts of a housing bubble, Greenspan bolstered Kohn's argument by focusing on the strength of the mortgage market.

After extracting hundreds of billions of dollars in home equity, American's have more than enough left to stave off any so-called housing bubble.

"There can be little doubt that the availability of a ready source of home equity has reduced the costs and uncertainties associated with income volatility, retirement, unexpected medical bills and a host of other life events that can unexpectedly draw down savings," said Greenspan speaking March 4, before the annual convention of the Independent Community Bankers of America in Orlando, FL.

Due to record low mortgage rates, consumers last year refinanced 10 million home mortgages, excluding home equity and construction loans, to the tune of a record $1.75 trillion representing one-third of the value of all home mortgages. Mortgage originations last year at $2.5 trillion is also a record, said Greenspan.

Refinancing allowed households to cash out $200 billion in home equity, $70 billion of which was used to pay down debt. Estimates indicate half the cash out billions were used for home improvements and other purchases that help bolster the economy.

Greenspan attributed both low rates and easy access to home equity to the growing trend of paying off higher cost debt with the home bank.

Home purchase mortgages last year topped $600 billion increasing the nation's home secured debt by $350 billion -- a figure that matches the the amount of equity the nation's home owners have earned in recent years.

"It is likely, however, that home sellers, after setting aside a down payment for the family's next home, expended a considerable part of their home equity extraction on goods and services," said Greenspan.

"All in all, the amount of previously built-up equity extracted from owner-occupied homes last year, net of fees and taxes, totaled $700 billion by our calculations, or more than 10 percent of estimated equity at the beginning of the year. Home equity extraction for the economy as a whole is, of necessity, financed by debt. In fact, the $700 billion of equity extraction is similar to the increase in mortgage debt last year," he added.

Greenspan said even after the large volume of equity extraction, home price appreciation left home owners with more equity at the end of 2002 than they had at the beginning of the year.

While the chairman expects a slowing of home price appreciation, home buying and refinancing activity, no national housing bubble looms.

"It is, of course, possible for home prices to fall as they did in a couple of quarters in 1990. But any analogy to stock market pricing behavior and bubbles is a rather large stretch," said Greenspan.

Why? Greenspan explains.

Published: March 6, 2003

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.