Every week we see new data lamenting plummeting home prices and hear policy-makers advocating price supports in the housing market.
A new report from Washington, D.C.-based Center for Economic and Policy Research offers a straightforward solution to the turmoil in the housing market: Let the prices fall.
The report notes that prices are still hugely out of line with trend levels in bubble markets and calls for Fannie Mae and Freddie Mac to restrict the buying of mortgages in those areas. This would lead to fewer loans being issued in those markets and prices would quickly adjust to normal levels.
"Most policy analysts failed the public by missing the housing bubble," report author Dean Baker said. "By simply limiting the flow of capital into bubble-inflated markets, the (government sponsored enterprises) have the opportunity to bring stability back to the housing market by helping prices return to trend levels."