Less Support for Housing?

In a new column entitled “Time to Let Home Prices Fall?”, Tom Petruno of the LA Times writes:

Leave housing to market forces, let prices fall until buyers are motivated to come in, and hope that the economy can stand one final cathartic wave to clear the excesses of the bubble.

He also notes that

a new decline in home values also could force the banking system, and the government, to finally deal realistically with a root cause of the economy’s woes: the gigantic debt load consumers took on over the last two decades.

As measured by the Federal Reserve, the household sector is reducing its debt, but at a very slow rate. And because domestic hedge funds and nonprofits are folded into the stats for the household sector, we have no idea whether actual American households are reducing their debt at all.

The question is whether a sharp fall in housing prices would be bracing or destructive.

About Michael Mandel 127 Articles

Michael Mandel was BusinessWeek's chief economist from 1989-2009, where he helped direct the magazine's coverage of the domestic and global economies.

Since joining BusinessWeek in 1989, he has received multiple awards for his work, including being honored as one of the 100 top U.S. business journalists of the 20th century for his coverage of the New Economy. In 2006 Mandel was named "Best Economic Journalist" by the World Leadership Forum.

Mandel is the author of several books, including Rational Exuberance, The Coming Internet Depression, and The High Risk Society.

Mandel holds a Ph.D. in economics from Harvard University.

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