Kevin Drum catches Barack Obama promising to "prevent the continuing deterioration of the housing markets" and snaps back with the right response. "Housing prices are still well above where they ought to be," he writes. "Unfortunately, they need to deteriorate some more...we don't want to prop up housing prices at their current unsustainable levels, and we probably couldn't do it even if we wanted to. Rather, we need to find ways to help out homeowners even though prices are going to continue to deteriorate for a while. That's pretty tricky, though, since anything you do to rescue homeowners also has a tendency to keep house prices propped up." it is, as he says, a tricky needle to thread. But the problem in the housing market is that prices were inflated by an asset bubble. You really don't want policies that artificially preserve the bubble. You want policies that mitigate its harm. One of the nice ideas I've heard on this score comes from Dean Baker. He argues that we should give "homeowners facing foreclosure the option of renting their home for as long as they want at the fair market rate. This rate is determined by an independent appraiser in the same way that an appraiser determines the market value of a home when a bank issues a mortgage." That doesn't prop up housing prices, but it does ease dislocation. More details -- it's the sort of idea where the details are important -- here.
