The Trouble with House Prices.

A few months ago, I wrote this:

Now comes a story from the AP saying that people's expectation of PI is negative 1/4 of the time. This all by itself will substantially decrease house prices, and may cause them to overshoot below their fundamental values. Ed Leamer has a proposal to use the tax code to prop up values, but because it is temporary, I am not sure it would be sufficient. More important is the rapid expansion of the FHA program, which explicitly places the US Treasury behind housing markets. We'll see whether it is sufficient...