According to certain economists and political commentators, housing prices will have to reach pre-recession levels if the economy is going to recover. But as Reason economics columnist Veronique de Rugy explains, those pre-recession prices were a historic anomaly caused by easy credit and misguided government policy. In her weekly appearance on Bloomberg TV, Reason columnist Veronique de Rugy explains the truth about housing prices by separating economic fact from economic myth.
Myth 1: In order for the economy to recover, housing prices have to reach pre-recession levels. They cannot decline further. Therefore the government must continue to prop up housing prices or provide incentives to encourage people to buy homes.
Fact 1: Pre-recession housing prices were a historic anomaly based on easy credit caused in part by misguided government policy. Lower housing prices are not bad for everyone. They are also the only way to get rid of our bloated housing inventory.
Myth 2: We need a foreclosure moratorium to help those people drowning in debt who have had to default on their mortgages.
Fact 2: Defaulting on a mortgage does not necessarily reflect an inability to pay. The current crisis has produced a new phenomenon: homeowners who default by choice. A moratorium would eliminate the current penalty and thereby encourage more people who are still able to pay to walk away from their obligations.
Myth 3: There is a national foreclosure crisis.
Fact 3: It is a national problem, not a national crisis. It is a crisis in only a handful of states.
For additional information, see de Rugy' s article "The Truth About Housing Prices."
Approximately 6 minutes.
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