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Countdown: Existing Home Sales

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09-26-2005

TOM KEANS, host, Bloomberg Radio Station

BROADCAST TRANSCRIPT

TOM KEANS, host: Chicago Federal Reserve President Michael Moskow today said the US economy remains strong, despite the impact of the two hurricanes.

Mr. MICHAEL MOSKOW (President, Chicago Federal Reserve): We believe there is still excess capacity in the economy. There could be some temporary impacts on prices because of the shortages, materials, labor, certain parts of the economy.  We think the fundamentals are strong and we think these are, at least at this point, short-lived.

KEANS: That brings us to existing home sales. They surged last month as prices reached an all-time high as Vinny outlined. Sales rising two percent to $7.29 million on an annualized basis. It's the second highest level ever.

Joining me on the Bloomberg Business Hotline from Paris, France, we've got Entrust Group CEO Hugh Bromma. Entrust managing more than $1.7 billion in retirement fund assets for corporations and individuals in non-traditional areas such as real estate.

So Hugh, did today's data on home sales come as a surprise to you?

Mr. HUGH BROMMA (CEO, The Entrust Group): It actually didn't, because most of the data came out as pre-Katrina, and we have seen and have seen for several years now--five years--an increase in home sales.  So, I think that this is  a trend. It's a trend that will likely continue. We'll see what the impact of Katrina is next month when the new data come out.

KEANS: Alan Greenspan was speaking to a California bankers' group. He said exotic housing loans are cause for some concern, pecifically mentioning interest-only loans. He mentioned them as novel. The Fed chairman also says   speculation may be driving prices higher and that the housing situation requires, in his term, ongoing scrutiny.

Mr. ALAN GREENSPAN (Chairman, Federal Reserve): It is still too   early to judge where the froth will become evident on a widening geographic scale or whether recent indications of some speculative pressures signal the onset of a moderating trend. 

KEANS: Hugh, what about this froth that Alan Greenspan refers to? Is it leading to, at least, regionalized bubbles that may be to, if not burst, leak a little? 

Mr. BROMMA: Well, I think, in fact, there's a very good point that was made there in that I believe we're looking at regional changes, if you will, or ajustments, and that the concept of a regional bubble is not something that has been unknown in the past. It isn't a huge collapse that we are going to be seeing on a national basis. I do think that it is going to be regional. 

KEANS: Is speculation in real estate, Hugh, driving prices higher? 

Mr. BROMMA: In some cases, and it really depends on where the hot markets are, if you will. To some extent, as we know, second home costs have gone up, and mainly because the NAR, for instance, discovered that second homes are really speculative, if you will. That is, they are investment homes rather than being second homes. 

KEANS: There's something--you put out a note on this about renting the second homes out to the government here to help house hurricane evacuees. Is this something that is going to become relatively popular? Will this be a way for people to not only help out Katrina victims but also make a buck? 

Mr. BROMMA: We'll see what happens. It depends on how many people really are in a situation where they are going to need to have second homes or that second home owners, if you will--investment property owners--are going to be able to rent or are going to want to rent to those displaced persons. 

But I don't think that, in the long-term, we are going to see this as being a really big thing. There just aren't that many individuals that are involved, even though it has been a terrible calamity. It would take tens of thousands of individuals to really make a change. 

KEANS: Fair enough. 

Hugh Bromma, thanks, we appreciate you taking the time to be with us. Enjoy your time there in Paris.

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