A Fast Fall May Be a Good Thing
That’s the upshot of this article from Monday’s L.A. Times, which includes the usual gloom and doom about how things are going to get worse before they get better. It also pointed out that the housing slump was a major drag on the U.S. economy.
When it comes to housing, the optimists are those who see the near free fall in home prices as encouraging: It may at least shorten the economic agony. “Because the prices are going down so fast, we’ll be hitting the stabilization point sooner,” said Lawrence Yun, chief economist at the National Assn. of Realtors.
Home prices have fallen about 14 percent in the last year. Thomas Lawler, a Virginia economist, noted that in the 1990s downturn, it took seven years for prices to fall 20 percent.
“Do you want a slow bleed?” Lawler asked. “Wouldn’t it be nice to just get it over with? It might be that that’s what we’re seeing.”
Yes, it would be nice to get it over with. That’s why a government bailout, which would simply postpone the inevitable, is a bad idea.
Lawler believes that the government should help ease the liquidity crisis facing banks but should stay out of the housing market itself. He thinks measures currently under consideration in Congress would interfere with the natural correction of the market.
Exactly. Get out of the way, Barney Frank! But of course, he won’t.
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said Congress’ goal was to reduce the effect of the housing crisis on the overall economy. He has authored a plan that would greatly expand the availability of government-insured mortgages in an effort to limit the ripple effects of large numbers of foreclosures on local communities. “We’re not trying to stop housing prices from dropping,” Frank said in a recent interview. But without his plan, he said, “the recession will be longer and deeper than it otherwise would be.”
Says who? I wish I knew why lawmakers are so eager to stick their noses in this one. Their constituents don’t want speculators, investors and reckless buyers bailed out with taxpayer money, and the homeowners themselves are more likely to walk away than spend years in a house they’re upside-down on (and thus can’t withdraw money out of like an ATM, which is what a house is for, isn’t it?)
Meanwhile, Dean Baker, co-director at the Center for Economic and Policy Research in Washington, thinks prices have much farther to fall — and that they will fall fast.
Yun of the National Assn. of Realtors said prices of existing homes had fallen about 8.5% since their peak in the summer of 2006 and probably had 10% more to go. “Peak to trough, we’ll be looking at 20% or even greater,” he said. Baker thinks that’s too optimistic. Before the mid-1990s, he said, house prices moved up roughly in line with inflation. But since 1996, they have gone up 170% — well above the rate of inflation. To bring them back to where they would have been without the bubble, Baker estimated, would mean a drop in real prices of about 40%. “Given how fast prices are falling now, we could see the prices adjusted by the end of the year,” Baker said.
That would be something, wouldn’t it? It would be good news to people who want to buy, but still can’t afford to. We’ll have to wait and see who’s right. What do you think?
Recent Redfin posts:
Why I’m Not a Motivated Seller, and More on Open Houses
Lake Balboa: Navigating a Housing Recovery?
