Housing in California

Centex, one of the nation's largest homebuilders, advertises in the Bay Area that "for a limited time", if you buy a home from them, they will keep your monthly payments low for 5 years. The buyers are promised to pay "below market rates".

Centex is joining the game shady lenders have been playing for a long time: your monthly payment is "low", say 1%, but your yield is still 6%. The way this works is that the principal is increased every month.

This latest campaign will keep new home sales higher than they would be without such incentives - at least for now. It does, by the way, also keep banks happy. Accounting rules require bank to record (in the example above) the full 6% in income as long as the mortgage holder does not default on his or her 1% payment.

The automotive industry could push out their demise with enormous subsidies for some time; let's see how long the home builders can keep things going. For now, home builders are given a lifeline because long term interest rates have not moved up much.

Former Federal Reserve Chairman Alan Greenspan said on Thursday the U.S. economy was pulling away from the shoals of a sharp housing-sector downturn and that the outlook for growth was "reasonably good."

"Most of the negatives in housing are probably behind us," Greenspan said at a conference sponsored by the Commercial Finance Association. "The fourth quarter should be reasonably good, certainly better than the third quarter."

Thought: Greenspan created the greatest housing bubble in history. So what the Maestro now says about the housing picture I take with a large grain of salt.