New data from the S&P Case Shiller Home Price Index reinforce the conventional wisdom: home prices have found a bottom and are rising. That is certainly welcome news for beleaguered homeowners, as well as a skittish housing industry desperate for a psychological boost. It should not mean, however, that Washington policy makers can simply sit back and let market forces take their course. Now, as the economic headwinds are finally easing, policy makers should double down and strengthen public initiatives that have helped us get to this point.
While the vast majority of housing price indices are certainly showing improvement, it’s important to remember that those are national averages of the largest metro areas. Big cities where housing markets are doing well, like Washington, DC and other heavily populated coastal metros carry greater weight in the stats than places like the Rustbelt where prices are recovering more slowly.
Progressives need to pay special attention to the ongoing foreclosure and negative equity crisis plaguing the vast majority of the country. And Congress should extend the Mortgage Debt Relief Act of 2007, which is set to expire December 31. This extension would continue important provisions, such as providing an income tax exemption on debt forgiveness due to short sales and principal reductions in modifications. Not extending the tax breaks works at cross-purposes with other policies, such as Home Affordable Modification Program (HAMP) and the recent decision by Fannie Mae and Freddie Mac to expand “short sales” of distressed properties as an alternative to foreclosure.
Programs like HARP are having a modest impact, but now is the time to do more. With home prices finally going up, the risks and costs of public interventions in stricken housing markets decline. Taxpayers’ dollars will go farther, and private lenders and home builders may finally gain the confidence they need to get back in the game.