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The Key to Stabilizing House Prices: Bring Them Down



This report states that bringing about the rapid adjustment of house prices to trend levels is the best means of returning stability to the housing market. The paper also calls for the restriction of GSE capital in bubble-inflated markets, with the intent of forcing house prices in these areas to return to trend level. The removal of capital from bubble markets and the consequent infusion of loans into non-bubble markets would stabilize prices in these areas, thus preventing a downward price spiral and overshooting of trend-level prices on the negative side. The report also advocates mortgage appraisal based on a price-to-rent ratio of 15 to 1. As well, the paper suggests giving families facing foreclosure the right to rent their homes both to keep them in their houses and offer banks real incentives to avoid foreclosure.

Suggested Citation

  • Dean Baker, 2008. "The Key to Stabilizing House Prices: Bring Them Down," CEPR Reports and Issue Briefs 2008-32, Center for Economic and Policy Research (CEPR).
  • Handle: RePEc:epo:papers:2008-32

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    References listed on IDEAS

    1. David G. Blanchflower & Alex Bryson, 2004. "What Effect Do Unions Have on Wages Now and Would Freeman and Medoff Be Surprised?," Journal of Labor Research, Transaction Publishers, vol. 25(3), pages 383-414, July.
    2. Heather Boushey & Shawn Fremstad & Rachel Gragg & Margy Waller, 2007. "Understanding Low-Wage Work in the United States," CEPR Reports and Issue Briefs 2007-09, Center for Economic and Policy Research (CEPR).
    3. John Schmitt, 2008. "Unions and Upward Mobility for Latino Workers," CEPR Reports and Issue Briefs 2008-28, Center for Economic and Policy Research (CEPR).
    4. John Schmitt, 2008. "The Union Wage Advantage for Low-Wage Workers," CEPR Reports and Issue Briefs 2008-17, Center for Economic and Policy Research (CEPR).
    5. Barry T. Hirsch & Edward J. Schumacher, 2004. "Match Bias in Wage Gap Estimates Due to Earnings Imputation," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 689-722, July.
    6. Marco Manacorda, 2004. "Can the Scala Mobile Explain the Fall and Rise of Earnings Inequality in Italy? A Semiparametric Analysis, 19771993," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 585-614, July.
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    More about this item


    housing bubble; home prices; household wealth; right to rent;

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • E - Macroeconomics and Monetary Economics
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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