NCPA - National Center for Policy Analysis


March 6, 2008

With home prices tumbling, we're bombarded by somber reports. But this is actually good news, because lower home prices are the only real solution to the housing collapse, says columnist Robert Samuelson.

By definition, the "housing bubble" meant that home prices got too high:

  • Easy credit, lax lending standards and panic-buying raised prices to foolish levels; weak borrowers got loans, people with good credit borrowed too much and speculators joined in.
  • According to the National Association of Realtors, from 2000 to 2006, median family income rose almost 14 percent to $57,612; over the same period, the median-priced existing home increased about 50 percent to $221,900.

The understandable impulse by legislators to minimize foreclosures -- particularly empowering bankruptcy judges to reduce mortgages unilaterally -- should not serve as a pretext to prop up the housing market by rescuing too many strapped homeowners.  Helping today's homeowners makes little sense if it penalizes tomorrow's homeowners.    Though cruel, foreclosures and falling home values have the virtue of bringing prices to a level where housing can escape its present stagnation, by making houses more affordable to potential buyers, explains Samuelson.

An unstoppable free fall of prices seems unlikely.  Slumping home construction and sales have left much pent-up demand. What will release that demand are affordable prices, says Samuelson.

Source: Robert Samuelson, "The Upside To Lower Home Values Will Be Release Of Pent-Up Demand," Investor's Business Daily, March 4, 2008.


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