How to Make Home Prices Go Up
by If declining home prices is the problem in the US economy here is a simple and legal solution that would work.
Many experts today are saying the real problem in the US economy is the housing market. Home prices have fallen so much over the last year that up to 20% of all US home owners are living in houses with mortgages above the current value of their homes. In order for the US economy to recover home prices must stabilize. But what if home prices actually went up? Wouldn’t that really help the US economy? There is a simple way this can happen today.
The Federal Reserve can start buying homes across the country. Before you start saying that’s crazy and not legal think about it. If the Federal Reserve started buying homes it would have a tremendous effect on the economy. Home prices would not only stop declining they would start going up. The Federal Reserve has all the money it needs to buy as many homes around the country as it wants. As the money flows into housing not only would home prices rise but credit markets would also start to open up again. Why? Because a great deal of the bad assets on banks balance sheets are bad mortgages tied to the decline in home prices. As the bad assets become good again banks would be free to lend more money as their own balance sheets improve.
As far as the Federal Reserve having the legal right to purchase homes that is covered completely in the Federal Reserve Act. The first sentence in the Act states that the Federal Reserve exists, “to create an elastic currency.” Buying homes and putting money back into the US economy would create an elastic currency which is something this country has not had for well over one year now.
As the money used for the home purchases flowed through the US economy we would see consumers starting to spend their own money again at normal levels, asset prices would stop declining, wholesale prices would stop falling, business sales would start rising again, businesses would stop laying off workers and would actually start hiring again so the unemployment rate could stop rising and overall business activity would turn positive again.
What would the Federal Reserve do with all the homes it purchases? As the housing market picks back up it could sell the homes and make a profit. Or sell the homes to low income families. Or keep the homes and rent them out. Or tear down the homes and sell the lots. It wouldn’t matter what it did with the homes.
If in fact the real problem in the US economy today is the housing market the Federal Reserve can quickly and easily solve this problem by going into the housing market and purchasing homes until home prices stop declining and start rising again.
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