August 22, 2011
The NYT’s lead editorial told readers that:
“Congress and the White House have yet to figure out that the economy will not recover until housing recovers.”
It’s not clear what the paper means by this. The piece complains that “sales of existing homes fell in July by 3.5 percent, while prices were down 4.4 percent in July from a year earlier.”
If it means that prices must recover then it is looking in the wrong direction. House prices are still about 10 percent above their long-term trend level. In other words, the bubble has not yet fully deflated. If it has any reason for believing that the fundamentals of the housing market justify this sort of divergence from trend it is not clear what this could be. Certainly the near record vacancy rates (down somewhat from the 2009-2010 peaks) do not support the notion that prices are too low.
Also, even with the decline in existing home sales, the recent sales rate is still more than 1 million higher (@30 percent) than the mid-90s pre-bubble rate. So it is not clear what aspects of the housing market the NYT expects to see fixed.
In its list of remedies for underwater homeowners facing foreclosure the editorial missed the simplest one, giving foreclosed homeowners the right to stay in their house as renters paying the market rent. This could be passed into law at the state or federal level or implemented uniltaerally by Fannie and Freddie which are now seeing half of all foreclosed properties.
The right to rent plan involves no complex bureaucratic calculations, nor taxpayer dollars. There is no major moral hazard problem and no serious windfalls. In other words, it’s the sort of policy that has no chance in Washington.
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