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By David Chalian

The sluggish economic recovery would certainly get a short-term boost if the housing market picked up a bit of steam, but any notion that a boom in housing alone will be the key to a fully recovered American economy should be eradicated according to former Obama economic adviser Austan Goolsbee.

"When housing comes back, and I think in many if not most markets in the U.S. we have reached a bottom and you've started to see the prices recovering. But when they come back, it's probably not going to be back to the Go-Go days," Goolsbee told The Daily Ticker. "It's just unrealistic. We've got 5 million vacant homes in the country and so the thought that we're going to get substantial construction building more homes, I think it's going to be several years before that happens, though we might see some relief with the prices starting to go up modestly."

Goolsbee, who currently serves as a professor at the University of Chicago, also weighed in on a controversial policy proposal getting some attention and consideration by local officials across the country including Chicago Mayor Rahm Emanuel.

Mortgage Resolution Partners, a San Francisco-based company, has put forth a proposal where local governments would use eminent domain authority to take ownership of underwater mortgages.

It's not clear if that would be a legal use of eminent domain, but Goolsbee said it is worth consideration.

"That kind of thing hasn't been tried before. I'd advise anybody to look at this. In most of these housing policies when you actually sit down and look at the details a lot of them are hard to put into practice. If you are weighing in with eminent domain, I think you just got to be careful about what the spillover effects are going to be on other parts of the housing industry. But we know there $750 billion of negative equity out in the housing market and that's a huge issue. These people who have debt overhang are not increasing their consumption. They are going to have a hard time coming back while they're under all that debt."

Goolsbee also expressed dissatisfaction with FHFA acting director Ed DeMarco's continued opposition to writing down the principals for underwater homeowners.

"It's on a strictly business decision they ought to be evaluating whether they can keep more people in their homes and get more payments out of them by writing down their principals somewhat so that they don't default," he said. "I find it a little frustrating that the head of Fannie and Freddie is not wanting to think anything other than let's just hold on to these vacant homes and hopefully the prices will and let's not consider any of these kind of alternative payment options."

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