Letting the Housing Market Fall

 By Barry Ritholtz

I have been arguing for the government to step away from propping up the housing market for several years now.
It seems that economists are finally catching up with the idea. Today’s NYT has an article, titled Housing Woes Bring New Cry: Let Market Fall. Only I would argue its not new at all, and some os have been saying this for (literally) years.
Excerpt:

“Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.
As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. 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.”

Its not a crash that is needed — it is merely allowing prices to revert to their historic levels.
>
Source:
Housing Woes Bring New Cry: Let Market Fall