Larry Summers is right: we need to fix the housing market (NYSE:IYR) if we intend to see the US economy come storming back. However, in his recent bully pulpit post at Reuters, Summers slips in a very curious and, frankly, insane statistic to use as a benchmark for mortgage credit standards.
Here’s Summers’s premise:
First, and perhaps most fundamentally, credit standards for those seeking to buy homes are too high and rigorous in America today. This reduces demand for houses, lowers prices and increases foreclosures, leading to further tightening of credit standards and a vicious growth-destroying cycle. Publicly available statistics suggest that the characteristics of the average applicant in 2004 would make an applicant among the most risky today. Of course the pattern should be opposite, given that the odds of a further 35 percent decline in house prices are much lower than they were at past bubble valuations.
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