Governments need to back away from trying to "save" the housing market

Governments have gone to extremes trying to prop up and save home prices from the normal corrective forces of over-supply and weak demand. The trouble is they have blown a fortune trying to stop the inevitable reckoning process, and in the end the dominant forces of downward prices will surely resume. As we have seen in Japan over the past 20 years, the more governments try to stop the correction needed the more they drag out the painful process. Housing expert Robert Shiller talked on CNBC yesterday about the double dip risks to the economy ahead. The bottom line is that governments are not magicians who can solve over-capacity problems with a flick of their fiscal wand; they can elongate the problems, but they cannot “fix” them. I think 2010 will be the year when the world wakes up to this realization.