Paulson: Let housing prices fall

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

Important speech from the Treasury Secretary (pictured) today: ‘Housing prices need to fall further to permit shell-shocked housing markets to stabilize and policy-makers should not interfere with that process, Treasury Secretary Henry Paulson said on Wednesday.’

More from Reuters via LATimes.com: Treasury Secretary Henry Paulson ‘... said regulators including the Federal Reserve were ‘vigilant’ and doing everything they could to minimize damage to the economy but played down the value of a more direct government role.’

The entire speech is here:, but I’ve taken the liberty of cutting and pasting the section in which Paulson addresses housing prices:

‘The housing downturn and the surrounding uncertainty are significantly impacting our financial institutions and capital markets. However, we should not lose sight of the fact that this downturn was precipitated by unsustainable home price appreciation which was particularly pronounced in a relatively few regions. A correction was inevitable and the sooner we work through it, with a minimum of disorder, the sooner we will see home values stabilize, more buyers return to the housing market, and housing will again contribute to economic growth. Having stability in housing markets will in turn contribute to better conditions in credit markets for mortgage-backed securities.

More, ‘Data releases every month create headlines about declining housing sales, starts and prices. Yet, declines are exactly what we should expect during a correction. It takes time to work through the excess inventory – and we are. The question many are asking is how deep the correction will be and how long it will last. ...

More from Paulson’s speech: ‘The Case-Shiller index of home prices in 10 major metropolitan areas showed an 11.4 percent decline in home prices over the 12 months ending in January, and the futures market is predicting that the index will decline another 13 percent in 2008. But we do not have a national housing market; housing markets are regional – and there is considerable variation in adjustment, with prices changing the most in areas that had the greatest overbuilding.

Amid this correction, there are many calls to ‘do something about housing.’ When people say this, they are urging any number of possible things – minimize foreclosures, make affordable mortgages more available, improve the secondary market and liquidity for mortgages, improve the mortgage origination process, prosecute fraud, reduce the inventory of homes for sale, or help communities hardest hit by foreclosures.

The `to do’ list tends to get conflated. We must sort through each of these shared and desired outcomes, carefully choosing policies that minimize the impact of – but do not slow – the housing correction.’

Thoughts? Comments? E-mail story tips to [email protected].
Photo Credit: AP