The Painful Truth: Leave the Housing Market Alone

On Tuesday (May 24, 2011), the New York Times editorialized that the federal government needs to step in and force banks to modify loans rather than foreclose on hapless households. This was necessary in order to save the housing market and the economy. I challenge these assertions in a post over at National Review‘s blog “The Corner.” What the government really needs to do is get out of the way.

True enough, the housing market is in a recession. I would even characterize it as a depression. But, distortions in the housing market through bad federal and local policies mean that it’s going to take a long time for prices to function properly again and provide a real foundation for growth. Other sectors, as they have traditionally, will need to lead us back to sustainable growth.

Anthony Randazzo has been working on this issue steadily for the last two years, and his excellent work can be found here. A prescription for reforming mortgage lending can found here. His excellent article on why forced loan modifications (recommended by the New York Times) are a bad idea can be found here.

Samuel R. Staley, Ph.D. is a senior research fellow at Reason Foundation and managing director of the DeVoe L. Moore Center at Florida State University in Tallahassee where he teaches graduate and undergraduate courses in urban planning, regulation, and urban economics. Prior to joining Florida State, Staley was director of urban growth and land-use policy for Reason Foundation where he helped establish its urban policy program in 1997.