We are getting closer and closer to finalizing this huge bailout. I'll be happy to talk about it as it gets closer to becoming reality which it unfortunately will by very soon. However, every form of the plan misses a very fundamental problem.
People cannot afford the houses they lived in. They never could. That's the key point. I keep reading things where people are expecting the bottom in the housing market bottom soon and then start its rise up again. That thinking is crazy. We aren't anywhere close to the bottom. Prices have dropped "significantly" but it still is not enough. There was a meteoric rise in prices. Prices more than doubled in most areas in a 5 year period. Even if you are down 25% from the top, you still have quite a bit more downside before housing becomes anywhere near affordable.
A house should cost you no more than 3 times your annual income. Even that is on the high side. If a family earns $100k, which would put them in one of the higher brackets, that is still only a $300k house. In California, that buys you nothing. You still have to go out about 40 or 50 miles to find a house anywhere near that price range. Given the price of gas now, that is unrealistic for most people.
So until the prices come down, there will be pain in the market and the economy. People have an asset that is overvalued and they must continue to make payments on. Those out of the market, will be unable to buy until the prices come down. Alternatively, they could continue this terrible cycle and buy an overpriced asset that will eventually worsen the current situation. This is the fundamental problem and something that wont' be solved by throwing even more money at it.