NEW YORK - Former Federal Reserve Chairman Alan Greenspan predicts US house prices will begin to stabilize in the first half of next year, the Wall Street Journal reported on Wednesday.

File photo shows former US Federal Reserve chairman Alan Greenspan at the International Financial Corporation in Washington October 21, 2007. [Agencies]

Greenspan also offered a novel suggestion to bolster the housing market -- increase the number of potential home buyers by admitting more skilled immigrants.

But Greenspan cautioned that even at a bottom "prices could continue to drift lower through 2009 and beyond."

An end to the decline in house prices, he explained, matters not only to American homeowners but is a necessary condition for an end to the current global financial crisis.

"Stable home prices will clarify the level of equity in homes, the ultimate collateral support for much of the financial world's mortgage-backed securities," he said. "We won't really know the market value of the asset side of the banking system's balance sheet -- and hence banks' capital -- until then," he said.

Greenspan's forecast rests on two pillars of data.

One is the supply of vacant, single-family homes for sale, both newly completed homes and existing homes owned by investors and lenders. He sees that "excess supply" -- roughly 800,000 units above normal -- diminishing soon.

The other pillar is a comparison of the current price of houses -- he prefers the quarterly S&P Case-Shiller National Home Price Index because it includes both urban and rural areas -- with the government's estimate of what it costs to rent a single-family house.