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. 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. Investing

    10 Habits of Highly Effective Real Estate Investors

    The best real estate investors all share these traits and practices.
  5. Investing

    The Risks Of Real Estate Sector Funds

    Discover the risks and rewards of investing in real estate funds, as well as some of the best and worst performers.
  6. 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.
  7. 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.
  8. 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.
  9. Financial Advisor

    Top 4 Global Real Estate Mutual Funds

    Read about four of the best global real estate mutual funds, which invest in the securities of real estate companies or real estate investment trusts (REITs).
  10. Investing

    Is Now A Good Time To Invest In Real Estate?

    From carrying costs to investment risk, there's a lot to consider before you invest in real estate.
RELATED TERMS
  1. Fed Speak

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

    Land plus anything on it, including buildings and natural resources.
  3. Pale Recession

    A phrase used in May 2008 by former Federal Reserve Board Chairman ...
  4. Private Equity Real Estate

    A Definition of "Private Equity Real Estate" and how it applies ...
  5. Bubble Theory

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

    A description of the perceived attempt of then-chairman of the ...
Hot Definitions
  1. Contango

    A situation where the futures price of a commodity is above the expected future spot price. Contango refers to a situation ...
  2. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  3. Acid-Test Ratio

    A stringent indicator that indicates whether a firm has sufficient short-term assets to cover its immediate liabilities. ...
  4. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
  5. Taxes

    An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government ...
  6. Impaired Asset

    A company's asset that is worth less on the market than the value listed on the company's balance sheet. This will result ...
Trading Center