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October 15, 2008

More commentary on home prices

As home prices are a topic of considerable interest here (at least among those of you who comment), I thought you'd like to see economist Dean Baker's price-related thoughts in his newest Housing Market Monitor:
Proposals by politicians and economists to try to prevent further price declines will inevitably prove counterproductive. They are likely to encourage more oversupply through more building (unless we also restrict building, in the same way that farm price support programs often restrict agricultural production) and will simply lead more people to buy homes at bubble-inflated prices.

The best course for the economy and the housing market would be if house prices fell back to their trend levels as quickly as possible. At the recent pace of price decline, house prices should reach their trend levels by the middle of next year. Of course, tight credit and the further weakening of the economy could bring this date forward. It would be reasonable to try to prevent prices from overshooting on the downside, but this would mean focusing on the markets where this could occur (e.g. Detroit and Cleveland), not a blanket effort to prevent price declines nationwide.

Baker is co-director of the Center for Economic and Policy Research. 

Opinions? Arguments?

Posted by Jamie Smith Hopkins at 12:28 PM | | Comments (0)
        

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
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