Back to the 30s?

A Time for Bold Thinking on Housing

Economic View
A Time for Bold Thinking on Housing
By ROBERT J. SHILLER
Published: November 25, 2007
For lessons in real-estate innovation, look back to the 1930s.

Excerpts:

WE have to consider the possibility that the housing price downturn will eventually be as big as that of the last truly big decline, from 1925 to 1933, when prices fell by a total of 30 percent.
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This crisis should be an occasion for some inspired thinking about fundamental changes in our real estate institutions. The actions that have already been taken are not impressive. The housing market is worsening, and more and more home owners are getting into trouble with their mortgages.

The public response to the housing downturn of 1925-33 provides an important lesson in what government and private institutions can accomplish. Back then, people weren’t content with temporary palliatives. They were thinking big, and revolutionary changes were made in real estate institutions. Without those fundamental changes, the Great Depression would have been much worse than it was, and we would be in a more vulnerable situation today.
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The real estate appraisal industry needs to rethink its methods. How did it happen that appraisers acquiesced in valuations that were more and more discordant with economic fundamentals? Basic concepts and procedures need change.

Comment: Before that housing crisis, mortgages were not required to be self-amortizing! I'm not sure what the solutions are, but I've suggested before that Mortgage brokers should be licensed. It would help to require greater amounts down (say 10%), and to eliminate the so-called liar loans. On the other hand, we need to avoid the dangers of over legislating a solution!