This piece in the New York Times is from last month but still very true today.
We do need action to fix our banking system, but we don’t need quixotic policies aimed at pushing up housing prices. I suspect these policies have some appeal because they seem to help homeowners (like myself) as well as financiers. Still, the government can’t repeal the laws of supply and demand in the housing market. The price decline should remind homeowners, and home buyers, that housing should never be seen as a short-term speculation, but rather as a place to live, and hopefully to enjoy, for the long run.
I agree that the solution to the housing crisis is lower housing prices.
The problem is the lower the housing prices go the worse the banking crisis will get.
The housing crisis is beginning to end but the banking crisis is just beginning.
The Incredible Irony
The incredible irony of all this is that many credit crisis recovery ideas like having a moratorium on foreclosures are intended to strengthen weakening U.S. housing prices (in order to help banks and homeowners) but those efforts would also hurt the affordability of U.S. housing.
The irony is that one of the primary causes of the real estate boom and this current real estate bust was U.S. government policies intended to make housing more affordable my requiring that banks make some loans to people who didn’t qualify.
As my grandmother used to say, “The road to hell is paved with good intentions.”