The New York Times has an editorial commenting on the continued troubles with the housing market. The Times seems to believe that the market has or will over-correct – more so than the market warrants:
It would be comforting to believe that housing-market distress represents a normal, if painful, correction after a period of excess. But all housing trends — in prices, sales, construction and foreclosures — indicate a market that is likely to decline even more, and far more than is needed to erase the artificial gains of the bubble.
The last phrase is certainly debatable, as many economists assert that the market is still overvalued
The Times then argues that Washington should do more to fix the problem:
The best response would be for government to adopt policies to attack joblessness and foreclosures, including public investment in infrastructure and high-technology manufacturing and a renewed emphasis on negotiating new loan terms for homeowners whose homes have declined in value.
The numbers are getting worse, and that is bad for everyone. The question is how much worse they will need to get before regulators, lawmakers and the Obama administration make an all-out effort to fix the problem.
On this account I respectfully disagree. The Fed is already keeping interest rates at record lows via quantitative easing. I have no problem with regulators ensuring that banks and mortgage companies follow the law when it comes to foreclosures and modifications. However, I believe “an all-out effort to fix the problem” will further distort the market and prolong the slump. Unfortunately the only way out of a debt fueled crisis like this is slow and painful. Market prices need to correct and supply & demand need to realign properly.
I’m fine with some tinkering at the margins with some of the processes and making sure the banks follow all procedures properly. They need to play by the rules. However, additional and substantial intervention into the housing market cannot correct the imbalances that occurred over the last decade.