Housing prices are expected to trend lower over the medium to long-term, a new report by the International Monetary Fund released Tuesday said.
The cycle of foreclosures and defaults occurring in the U.S. has served to bring down house prices, report leader David Leigh told reporters at a briefing this morning.
The prices are now at or below long-term levels. Without implementing certain programs to combat this cycle, house prices could continue to trend lower and could undershoot costs, he continued.
His remarks were supported by findings from the latest World Economic Outlook (WEO) report released today.
"Targeted household debt restructuring policies can deliver significant benefits...can significantly reduce the number of household defaults and foreclosures and substantially reduce debt repayment burdens, at a relatively low fiscal cost," the report stated.
Specifically, the report said comprehensive programs, such as those implemented in the U.S. in the 1930s and in Iceland today, could be models for restructuring policies to use today.
On the positive side, the cycle of foreclosure and default has also lowered household debt back to 2003 levels, Leigh remarked.
This phenomenon may take several more years to occur in Europe, he added, where the number of defaults is much lower.
As for the restructuring programs, the IMF report noted the success of such programs depends on careful design.
"Overly restrictive eligibility criteria or poorly structured incentives can limit the programs' effectiveness," the report said. "Overly broad programs, on the other hand, can have serious side effects and undermine the health of the financial sector."
by RTT Staff Writer
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