Monday, May 9, 2011

Housing Bubble Still Not Deflating

Today's WSJ headlines shows that housing prices are still declining. This is actually a good thing, but should have happened sooner. The sooner we get to market clearing prices, the sooner the whole of the U.S. economy will recover. I will repeat myself.
When the housing bubble deflates or any other asset bubble, buyers move into the market to snap up bargains. In housing and in many other areas, that initial investment is followed by renovation and restoration, causing an uptick in economic activity. This is why I have repeatedly said that the official policy of the government should be to let housing prices fall to free market levels. Through its various attempts to prop up the market, including the failed HAMP program, they have damaged the economy by delaying the deployment of fresh capital into the market.
And I also repeat this graphic to show the futility of propping up the housing market.


  1. Elf and I thought of something-- what happens if you adjust the housing price for inflation?

    Especially if you adjust inflation to include food and fuel?

    Neither of us have a clue how to go about that, nor the time...

  2. That's a good question from Foxfier. I'd like to see a graph with inflation adjustments.