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. Why can real estate be a good addition to a traditional stock and bond portfolio?

    Discover why real estate can be a good addition to a traditional stock and bond portfolio. Real estate is affected by economic ... Read Answer >>
  2. What is a Greenspan put?

    Only five months into his tenure as Federal Reserve Chairman, Alan Greenspan faced his first crisis: the October 1987 stock ... Read Answer >>
  3. How do real estate hedge funds work?

    Understand what a hedge fund is and how it differs from a mutual fund. Learn about the ways in which a hedge fund becomes ... Read Answer >>
  4. What can capitalization rate tell investors about real estate bubbles?

    Learn about capitalization rates and what information investors may glean from them with regard to bubbles. Explore how rates ... Read Answer >>
  5. What are the most common mutual funds for investing in the real estate sector?

    Obtain information about some of the most popular mutual funds that investors can consider for investing in the real estate ... Read Answer >>
  6. How does the risk of investing in the real estate sector compare to the broader market?

    Learn about the high volatility of the real estate sector and how conservative investors gravitate toward real estate investment ... Read Answer >>
Related Articles
  1. Investing

    Can Real Estate Stabilize Your Portfolio?

    History suggests that real estate can provide diversification and a hedge against inflation.
  2. Insights

    Alan Greenspan: 19 Years In The Federal Reserve

    Follow the economic glories and bumbles in the career of the previous Fed chair.
  3. Investing

    Key Reasons To Invest In Real Estate

    There has been a lot of negativity over the real estate sector since 2008. Here are the reasons why you should be investing in it.
  4. Financial Advisor

    How to Invest in Real Estate Without Buying Property

    Investing in real estate can require more capital than most investors have available, but there are options to invest in real estate for less.
  5. Investing

    10 Habits of Highly Effective Real Estate Investors

    The best real estate investors all share these traits and practices.
  6. Insights

    Why Greenspan Is Getting Worried About U.S. Interest Rates

    Alan Greenspan says U.S. interest rates have been too low for too long, resulting in a bond market bubble, low productivity growth and possible stagflation.
  7. Investing

    Real Estate Vs. Stocks: Which One's Right For You?

    There are ups and downs for both real estate and stock investments, so before diving in, know the differences between the two.
  8. Investing

    Add Some Real Estate To Your Portfolio

    From REITs to owning your own home, find out how diversify your portfolio with real estate assets.
  9. Investing

    4 Key Factors That Drive the Real Estate Market

    Whether you are investing directly or indirectly in property, you need to know the factors that affect its value.
  10. Insights

    Alan Greenspan: Gold Is Safest Store of Value Right Now

    Alan Greenspan is sounding the alarm on out-of-control entitlements and inflation. Find out why he advocates for a return to the gold standard.
RELATED TERMS
  1. Fed Speak

    A phrase used to describe former Federal Reserve Board Chairman ...
  2. Private Equity Real Estate

    A Definition of "Private Equity Real Estate" and how it applies ...
  3. Pale Recession

    A phrase used in May 2008 by former Federal Reserve Board Chairman ...
  4. Bubble Theory

    A school of thought that believes that the prices of assets can ...
  5. Greenspan Put

    A description of the perceived attempt of then-chairman of the ...
  6. Investment Real Estate

    Real estate that generates income or is otherwise intended for ...
Hot Definitions
  1. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends each year relative to its share price.
  2. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. ...
  3. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  4. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  5. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  6. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
Trading Center