"Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.
"When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve."
Monday, September 06, 2010
Should we let housing prices crash?
If I had any faithful readers out there, they would know that I don't think the government should be propping up housing prices, and I've been saying this consistently for years. I think they should just let them return to normal levels.
Reason #1: Then normal younger people would be able to afford housing at normal proportions of their gross income.
Reason #2: I don't think this can realistically be done at a realistic price.
Since, in the end, government spending has to be covered by current/future tax revenue, government attempts to keep the price of housing high are a huge transfer of assets from people who don't own houses (on balance, younger and poorer) to people that do own houses (on balance, older and richer) -- and the banks that financed them. [The Bernacke-Paulson-Geithner policies begun under Bush and embraced by the Obama administration have been a big bailout for the banks, but of questionable value for the rest of us.]
Housing prices aren't normal yet. They are still too high, by historical standards. The Case-Shiller index is shown in the picture. Sure, there's a big crash -- but note that even this projection still has housing prices above an index of 100, which means they are still high by historical standards.
Now I find that "experts" agree with me. At least some "experts" quoted in the New York Times:
at 10:32 AM