What does 'froth' mean in terms of the real estate market?

By Rob Renaud AAA
A:

On May 20, 2005, while addressing the Economic Club of New York, the now former Federal Reserve chairman Alan Greenspan commented on the state of the American real estate market.

"Without calling the overall national issue a bubble, it's pretty clear that it's an unsustainable underlying pattern", said Greenspan while describing the increasing divergence between housing prices and many fundamental valuations of the real estate market. (To learn more, see How Investors Cause The Market's Problems.)

While he did not confirm the existence of a real estate bubble, Greenspan declared that there may be "a lot of local bubbles" in the housing market throughout the United States. As anyone who has ever had a cappuccino knows, froth is the equivalent of a lot of little bubbles. Therefore, in the real estate market, 'froth' describes the presence of many localized real estate bubbles. Although others may have referred to this phenomenon in the past, Greenspan's unique way of describing economic conditions tends to result in new terms being coined.

To meet the increased need of real estate investors to hedge their positions in the real estate market, a number of real estate hedges have been created and are marketed at individuals who own real estate in America's most popular housing markets. These real estate hedges are a type of hedglet, which is a means for individuals to hedge or speculate on the occurrence of economic events. (For more insight, check out A Beginner's Guide to Hedging.)

RELATED FAQS

  1. Are warrants more desirable than options?

    Understand what stock warrants are, the differences between warrants and options, and learn whether warrants or options are ...
  2. For investors, what are the alternatives to owning physical gold?

    Learn some of the primary alternate ways that someone can invest in the gold market besides simply purchasing physical gold ...
  3. Which emerging markets should an investor consider for exposure to the metals and ...

    Discover the world's top emerging market countries for investing in the metals and mining sector and what mined resources ...
  4. How are blue-chip stocks similar to mutual funds and exchange-traded funds (ETFs)?

    Understand the primary differences between making investments in blue-chip stocks, mutual funds and exchange-traded funds ...
RELATED TERMS
  1. Gentrification

    Gentrification refers to when a neighborhood or city undergoes ...
  2. Home (legal definition)

    A home is the place where a person has their permanent primary ...
  3. Real Estate

    Land plus anything on it, including buildings and natural resources.
  4. Discounted Payoff

    The repayment of a loan in an amount that is less than the principal ...
  5. Business Broker

    A professional who specializes in the purchase and sale of companies. ...
  6. Forbearance

    A temporary postponement of mortgage payments.

You May Also Like

Related Articles
  1. Stock Analysis

    How Two Harbors' Derivatives Work?

  2. Stock Analysis

    How Realty Income Became A Top Dividend ...

  3. Stock Analysis

    How Chimera Investment Bear The Brunt ...

  4. Professionals

    Are Alternative Mutual Funds, ETFs Right ...

  5. Investing

    Is the Best Plan for Pot Investing 'Wait-and-see?'

Trading Center