Greenspan says "double dip" possible if home prices go down

Former U.S. Federal Reserve Chairman Alan Greenspan said on Sunday that economic recession might come back if the housing market deteriorates.

U.S. economic recovery has lost momentum as indicated by a host of key economic indicators, including the worse-than-expected GDP figure released Friday. This upgraded the already-heated debate on whether the U.S. economy will slip to another downturn, or the so- called "double-dip" recession.

"It is possible if home prices go down. Home prices, as best we can judge, have really flattened out in the last year," Greenspan said in an interview on NBC's "Meet the Press."

"We're in a pause in a recovery, a modest recovery, but a pause in the modest recovery feels like a quasi-recession," he added.

U.S. economy grew at a 2.4 percent annual rate in the second quarter of this year, a deceleration from an increase of 3.7 percent in the first quarter of 2010 and 5.0 percent in the last three months of 2009, according to the preliminary estimate by the Commerce Department.

"If home prices stay stable, then I think we will skirt the worst of the housing problem,"he said."But right under this current price level, mainly 5, 7 or 8 percent below, is a very large block of mortgages, which are under water, so to speak, or could be under water. And that would induce a major increase in foreclosures, foreclosures would feed on the weakness in prices, and it would create a problem."

Home prices in the 20 biggest U.S. cities rose 1.3 percent in May from a month earlier, as showed by the Standard & Poor's/Case- Shiller home price index. But this increase was mainly fueled by the residual impact from the homebuyers' tax credit, which affects purchases that close through the end of June.

The collapse of the U.S. housing market triggered the worst financial crisis since the 1930s. While other sectors, including manufacture, service and financial industry, have shown gradual improvements since recovery began in the second half of last year, housing market seems to be stubbornly sluggish and continues to drag down the fragile economic recovery.

The International Monetary Fund recently warned that even though the agency does not see the possibility of a return of economic recession, there is the real risk of a "double dip" in the housing market.
(Source:xinhua)