Fixing America’s Broken Housing Market

There is no "market" in the US housing market anymore, with a broad consensus emerging that the government will have to continue propping up the sector for the foreseeable future. This stance is perplexing and possibly dangerous, for it prolongs the deleveraging process and creates the conditions for Japanese-style malaise.

NEW YORK – A sure sign of a dysfunctional market economy is the persistence of unemployment. In the United States today, one out of six workers who would like a full-time job can’t find one. It is an economy with huge unmet needs and yet vast idle resources.

The housing market is another US anomaly: there are hundreds of thousands of homeless people (more than 1.5 million Americans spent at least one night in a shelter in 2009), while hundreds of thousands of houses sit vacant.

Indeed, the foreclosure rate is increasing. Two million Americans lost their homes in 2008, and 2.8 million more in 2009, but the numbers are expected to be even higher in 2010. Our financial markets performed dismally – well-performing, “rational” markets do not lend to people who cannot or will not repay – and yet those running these markets were rewarded as if they were financial geniuses.

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