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.)

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