The man who (all too correctly) warned of "irrational exuberance" in the stock market six years ago is evidencing increasing nervousness about the housing market.

In his strongest statement to date, Federal Reserve Chairman Alan Greenspan told an audience in Jackson Hole, Wyoming last week that it was inevitable that housing prices will "simmer down." As part of that process, the Chairman said, home sales will slow and price increases will moderate or might possibly even decline. This, he said, would put a damper on "home equity extraction" (we assume this means cash out refinancing) which will impact the larger economy by slowing personal consumption which has been fueled by that "extraction."

Chairman Greenspan made his remarks at the closing session of a symposium sponsored by the Federal Reserve Bank of Kansas City on August 27.

Greenspan has spoken often over the last few months about what he has refused to call a national bubble but has frequently referred to as "froth" in regional markets. He has also warned about new mortgage products such as interest only and hybrid adjustable rate loans on the basis that homeowners could find themselves unable to pay their mortgages should rates rise suddenly and/or dramatically. He has also denied that the multiple rate increases that the Federal Reserve has put in place were designed to cool the housing boom.

In his closing remarks to the conference, probably his last appearance before the group as his 2006 retirement approaches, the Chairman further stated that "the surprisingly high correlation between increases in home equity extraction and the current account deficit suggests that an end to the housing boom could induce a significant rise in the personal savings rate, a decline in imports, and a corresponding improvement in the current account deficit."

While we report his remarks, it seems only fair to remind you that Chairman Greenspan once famously stated, and we may be paraphrasing but only slightly, that "if I have made myself clear, I have obviously misspoken."

We bow to his wisdom and self deprecation.