Housing Prices Must Be Allowed to Fall

The Wall Street Journal ran a story today about how home builders are pleading for $250B in federal aid.

This aid basically comes in the form of huge tax breaks for people who buy houses. This is one of the worst possible things the government could do. The builders are correct that housing prices underlie a lot of the financial woes right now. But, the federal government should be doing three things:
1) Encouraging people to realistically assess their housing situations. Rather than encourage people to buy houses, which is exactly what they were doing too much of the federal government should be helping them get out of their mortgages and move. The government should increase the tax credits for people who relocate between states, and create an extra tax rebate for those who sell houses in which they have negative equity.
2) Actively promoting retraining for housing industry employees and aiding them in moving out of the housing and construction industries.
3) Encouraging banks to move people out of unsustainable loans quickly, instead of waiting while the slow foreclosure process takes its toll on both the homeowners and the mortgage banks.

The faster people accept what their houses are worth (or rather, what they aren't worth), and start making rational decisions, the faster we will "hit bottom," both in terms of housing prices and in terms of asset portfolios based on mortgages. It is only "hitting bottom" and getting these assets re-priced which will, in the long run, allow growth to begin again and allow the gears of finance to start turning.