The Key to Stabilizing House Prices: Bring Them Down

Dean Baker
Authors registered in the RePEc Author Service: John Schmitt

CEPR Reports and Issue Briefs from Center for Economic and Policy Research (CEPR)

Abstract: This report states that bringing about the rapid adjustment of house prices to trend levels is the best means of returning stability to the housing market. The paper also calls for the restriction of GSE capital in bubble-inflated markets, with the intent of forcing house prices in these areas to return to trend level. The removal of capital from bubble markets and the consequent infusion of loans into non-bubble markets would stabilize prices in these areas, thus preventing a downward price spiral and overshooting of trend-level prices on the negative side. The report also advocates mortgage appraisal based on a price-to-rent ratio of 15 to 1. As well, the paper suggests giving families facing foreclosure the right to rent their homes both to keep them in their houses and offer banks real incentives to avoid foreclosure.

Keywords: housing bubble; home prices; household wealth; right to rent (search for similar items in EconPapers)
JEL-codes: E E21 L85 O51 R21 (search for similar items in EconPapers)
Pages: 7 pages
Date: 2008-12
New Economics Papers: this item is included in nep-lab
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Persistent link: https://EconPapers.repec.org/RePEc:epo:papers:2008-32

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