NCPA - National Center for Policy Analysis

Housing Market Problems and Solutions in a Nutshell

September 2, 2011

There are a million things being said about the housing market and about a dozen different interpretations of the data.  On top of it all there are several different programs being discussed by the White House as solutions to the market turmoil.  So what is going on?  Anthony Randazzo, director of economic research at the Reason Foundation, provides a snapshot.

Ignoring household debt does not make it go away.

  • Before we are going to see consumer confidence and demand return in force, household debt needs to fall.
  • There are four ways that debt can be lowered: (1) Programs that incentivize high debt like the mortgage interest deduction could be cut; (2) The default and foreclosure crisis could be allowed to accelerate its current course; (3) Wages could rise dramatically and the unemployment rate could fall; (4) The Federal Reserve could inflate away the problem.
  • A combination of the first two possibilities in this list would be the best policy approach by the White House and Congress.

It's the housing programs.

  • There are two big "ideas" on the table right now to try and solve the housing mess. Both would simply perpetuate the problem, says Randazzo.
  • First, a refinancing program that would essentially let homeowners whose mortgages are owned by Fannie and Freddie get lumped into a universal refinancing deal, setting their interest rate at today's extreme lows of around 4 percent.
  • Second: Selling government sponsored enterprise homes to create a national rental program.

In summary, we are in a bad place in terms of the housing metrics and household debt is holding us back.  Overall, the government has created more problems in housing and failed to address the real problems in the system with its programs, a significant reason why the housing market climate is so stormy at the end of August 2011. The only thing our government hasn't tried is the free market approach, says Randazzo.

Source: Anthony Randazzo, "Housing Market Problems and Solutions in a Nutshell," Reason Foundation,
August 31, 2011.

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