Treasury Secretary Paulson says housing prices should be allowed to fall

Treasury Secretary Henry Paulson agrees with both the Bush Administration (of which he is a part) and Republication presumptive nominee John McCain that the government should stay out of the housing market and let the market dictate where prices will fall. From an L.A. Times article:

Housing prices need to fall further to permit shell-shocked housing markets to stabilize and policy-makers should not interfere with that process, Treasury Secretary Henry Paulson said on Wednesday...

"A correction was inevitable and the sooner we work through it, with a minimum of disorder, the sooner we will see home values stabilize, more buyers return to the housing market, and housing will again contribute to economic growth," he said.

Despite calls to "do something about housing," the focus should be on "choosing policies that minimize the impact of -- but do not slow -- the housing correction," Paulson said...

Paulson said only about 2% of U.S. home mortgages were in foreclosure but said that as many as 2 million foreclosure starts might occur this year. In addition, he said that 8.8 million households may now have negative home equity -- meaning their mortgages are higher than the house could be sold for -- and said that will rise.

Still, he said that if homeowners who are "underwater" on their mortgages walk away from them, they are no more than speculators and don't deserve special help...

He noted that a number of lawmakers have proposed initiatives to ease the strain on homeowners and welcomed their ideas but added "most are not yet ready for the starting gate."

Democratic lawmakers are pressing for a more active government hand to ease the strain on hard-pressed homeowners, possibly through purchases, restructuring and resale of failing mortgages, but the Bush administration has trurned a cold shoulder to such suggestions.