Housing Choice – Help Today’s Owners or Future Buyers

This New York Times piece is a good one on the trade off in attempting to stimulate the real estate market. Any time the government attempts to hold up prices, it is also making it more difficult for people to buy who are not yet owners. Realistically, these attempts are only temporarily delaying reality, as housing prices cannot continue to outpace the incomes of those living in them.

It really makes sense for the government to attempt to allow a soft landing for housing, which it still has not reached, rather than attempt to keep prices permanently high.

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4 thoughts on “Housing Choice – Help Today’s Owners or Future Buyers

  1. It’s also possible to try and sustain a flat market until inflation naturally takes prices up to that level. Also a drastic drop in home prices would damage the recovery the same way another drop in unemployment would. I don’t see you advocating to let all the stimulus and unemployment benefits expire.

  2. I am not against stimulus, far from it. I just think that in this case, promoting inflated prices will not lead to anyone benefiting. It will just stretch out the pain. My point about a soft landing is essentially saying let inflation take care of it, but in any event, that is no different than letting housing prices fall while holding inflation steady.

    In reality, I am uncertain about what to do here, as you are right, the pain to those who own real estate could still be severe if it continues to drop in price, but I do not think we can just ignore the fact that real estate prices sky rocketed out of control in the last ten years and need to come back to reasonable levels.

  3. There actually is an easier economic answer: transfer payments. If policymakers want to distribute the losses suffered by current homeowners, they can do so without introducing the distortions of direct market intervention. This is politically unfeasible, of course. We can only issue massive cash payments out of public coffers when the recipients are large corporate institutions. Go figure.

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