Housing prices should be allowed to fall: Paulson

By Glenn Somerville

WASHINGTON (Reuters) - 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.

Speaking to the U.S. Chamber of Commerce, Paulson said regulators including the Federal Reserve were "vigilant" and doing everything they could to minimize damage to the economy but played down the value of a more direct government role.

"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.

The U.S. Treasury chief also said no one should conclude that broker-dealers and other big financial firms will get permanent access to new lending facilities made available by the Federal Reserve to ease market stresses.

"Despite the fundamental changes in our financial system, it would be premature to jump to the conclusion that all broker-dealers or other potentially important financial firms in our system today should have permanent access to the fed's liquidity facility," Paulson said.

PRECEDENT FOR TURMOIL?

Instead, he suggested the Fed's actions "should be viewed as a precedent only for unusual periods of turmoil."