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. How are American Depository Receipts (ADRs) exchanged?

    Learn specifics about American depositary receipts, including how they are exchanged and some of their advantages and disadvantages.
  2. What is the difference between adjusted and regular funds from operations?

    Understand a REIT's regular funds from operations and its adjusted funds from operations. Learn what each is used to measure ...
  3. What are examples of typical leasehold improvements?

    Learn what alterations are considered leasehold improvements, and find out which alterations are typically found in commercial ...
  4. What are the main risks associated with trading derivatives?

    Understand derivatives trading and learn about the primary risks usually associated with trading in the derivatives market, ...
RELATED TERMS
  1. Turnkey Property

    A fully renovated home or apartment building that an investor ...
  2. Ginnie Mae Pass Through

    A type of investment issued by the Government National Mortgage ...
  3. Agency Swap Program

    A form of securitization whereby single-family residential mortgages ...
  4. Accelerated Return Note (ARN)

    A short- to medium-term debt instrument that offers a potentially ...
  5. Exchange Traded Derivative

    A financial instrument whose value is based on the value of another ...
  6. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...

You May Also Like

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: ProShares Short MidCap4 ...

  2. Mutual Funds & ETFs

    Top 3 ETFs For Investing in Brazil

  3. Investing

    Where Are Real Estate Stocks Heading?

  4. Investing

    Looking for Alternatives to Invest in ...

  5. Investing News

    3 Ways Millennials Can Invest in Rental ...

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!