The Housing "Crisis" Was in the Past

On the housing crisis John Stossel asks of real estate lobbyists "why is the price drop a crisis? Sellers are hurt, but buyers benefit." True enough, if oil prices fell as fast as housing prices, the only ones who would call that a crisis are environmentalists. So why are falling prices a crisis? They're not. They are a sign we were in a crisis. It only seems like a problem because the cure is more painful than the disease even though it is less fatal.

Falling prices mean we over-invested in housing. That was a mistake in the past; had there been less investment in home building, there would have been more investment elsewhere and, since housing prices fell so much, we can confidently say that the "elsewhere" would have been much more productive.

Falling prices means people were over-dependent on the value of their homes when they used it to back a loan. This is particularly bad for banks who collect these homes when people defaulted. If housing prices were lower (as they should have been), banks would have demanded more collateral, which would have reduced today's defaults and today's cost of defaults. There's an element of the financial problems in this as well and certainly the housing mis-allocation contributed to it.

The inflated housing prices in the past is like a bad relationship. The break up might be messy, but the problems were in the past.