Housing Becomes More Affordable

I'm not a macro person, but I tend to regard this as quite good news, and not just because Dean Baker disagrees.

Home prices have posted another record decline, as most of the nation's largest markets suffered double-digit drops over last year, a survey released Tuesday shows.

The S&P Case/Shiller Home Price Index, which tracks 20 of the largest housing markets, showed prices plummeting by 12.7% in the 12 months ending February. That's the biggest fall since the index began tracking prices in 2000.

I tend to think a quick adjustment, wringing out the bubble and bringing housing back to its natural level would be the best thing that can happen. Thoughts?

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Adjustment is good, but...

...quick is not always better. Markets don't equilibrate instantaneously, so quick changes can cause shortages in some industries and surpluses in other industries which, in turn, can cause a recession if the adjustment is slow enough. On the other hand, what is occurring is an adjustment toward equilibrium, so it is good that it is happening quickly. But back with the first hand, other industries which respond to housing prices might not be so quick to adjust, so we are back to potential problems. It all depends on the empirics of the situation which I don't know enough about to actually draw a conclusion.


I agree entirely. My hunch is that it's best to be a "liquidationist", as Arnold Kling puts it, but I'm very unsure about it.

Mostly, I just wanted to use a "Bryan Caplan" style headline in a post on a very gloomy-sounding news story.