I understand why mortgage-documentation fustercluck could be very bad news for the banks. But can someone explain to me why slowing down the foreclosure process would tend to depress housing prices? It ought to increase them in the short run. Last time I checked, reducing supply tends to increase the market-clearing price, and fewer foreclosures now means fewer properties on the market now.
I’m also obviously unclear on the concept about housing prices overall. Again, I understand why banks and under-water homeowners want prices to go back up. But from a social perspective isn’t it obviously better for housing to be cheaper?
Similarly, I understand why a revival of home construction seems like a good idea to the construction industry, and why people worrying about having adequate demand to return to full employment are hoping for help from that sector. But I can’t see any good reason to want housing to take a larger, rather than a smaller, share of consumption and investment.
The whole notion that it’s “normal” for housing prices to rise faster than inflation or income, and for families to plan their financial futures around capital gains in the housing market, is an artifact of what looks, in retrospect, like a long bubble. If we got back to the house-price-to-income ratios of 1980, that would be fine with me. And I’d hate to see the maintenance of inefficient disequilibrium conditions adopted as goal of public policy.