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Carroll School of Management

Richard F. Syron

chairman & ceo, freddie mac

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Richard F. Syron addresses the Boston College Chief Executives’ Club of Boston.

Syron Warns of 'bubble' in Luxe Markets

The chief executive of Freddie Mac, Richard Syron, warned yesterday the nation's luxury housing markets are experiencing a speculative "bubble" and predicted falling home prices would dampen the US economy in the coming months.

Freddie Mac is the nation's second-largest mortgage company, after Fannie Mae.

Syron did not specify how much prices could fall but said he expected a correction in places that experienced strong appreciation of expensive properties, including Boston, New York City, California, and Florida. For more moderately priced houses, Freddie Mac's chief said current, large price gains will end, but he said they would continue rising in "single digits."

US house prices up dramatically, increasing nearly 14 percent in the past year amid strong sales. But economists are split over whether a housing bubble is occurring. Some argue house prices are up simply because Americans have been encouraged to buy dwellings in record numbers to take advantage of historically low mortgage interest rates.


H. Kerner Smith (CEO, Internet Power, Inc.) speaks with Michael Costello (Managing Partner, Pricewaterhouse Coopers, LLP) at the breakfast.

Syron said that if house prices fall, the economy is vulnerable to a slowdown because the housing boom has made enormous contributions the US economy in recent years. Freddie Mac-s research found 20 percent of growth in gross domestic product, or GDP, a measure of the value of all goods and services sold, is driven by sales of housing and spending on construction, appliances, and furniture. Housing accounted for about 1 million new jobs after the recession, and consumer spending has been boosted by a $10 trillion accumulation in home equity, he said.

"I think we have become reliant enough on housing that even a modest downturn would- I might say will- bring a downturn in the economy," Syron said in a downtown speech to the Boston College Chief Executives' Club. Even a leveling off in housing "is going to have an impact," he said.

Discussion of a housing bubble occurring nationwide is off the mark, Syron said, because "all housing is local." He does not forsee house price declines everywhere. "The answer to the bubble question depends on where you live," he said.

In Boston, "We have seen a bit of a bubble, particularly in the high end," he said in the text of his speech, which he did not deliver word for word.

Massachusetts home sales slowed in recent months, and prices were up just 5 percent over the past year, according to August figures from the Massachusetts Association of Realtors. Syron said prices for luxury homes- those valued at more than $1 million- may already be heading down.

He used his own house sale in November as an example. The one-time president of the Boston Federal Reserve Bank sold his house on Hammond Street in Chestnut Hill for $2.6 million and purchased a Brookline condominium.

"My guess is I'd get less for it today," he said. "I think we're post-peak here at the top end of the market."


Members of the press gather around Mr. Syron after he delivers his remarks.

A different outcome is likely for median-price houses: "I would not continue to bet we're going to see that kind of appreciation maintained," he said. The median Massachusetts house price is $375,000, up about 18 percent in two years.

Boston historically has had an older population. Syron said this bodes well for the condominium market. Baby boomers are selling their houses to exchange them for maintenance-free condo living.

"I'd expect the demand for condos here would be a little stronger than in other areas," he said.

Article by Kimberly Blanton
Boston Globe, Business Section
Friday, September 30th 2005