Housing Crisis, Solution: Time

There are three basic categories of people feeling the effects of the housing recession.

1. 1. The seller who can no longer sell his house for the price they think they deserve. Anybody can sell any house quickly if they lower the price enough, however people have been spoiled from skyrocketing prices and can't bare to face reality of what there property is really worth now.
2. 2. The mortgage holder who can no longer afford their property. This is because they either took the gamble that they could refinance their house before an ARM kicked in, they thought they would have significantly larger incomes, they thought they would quickly be able to resell their house (speculators), or were too ignorant of finances to understand what they were doing (perhaps helped by fast talking/moving mortgage brokers).
3. 3. Realtors, mortgage brokers, loan officers, and real estate investors who are no longer enjoying the income from large volumes of sales and new loans.

The good news for (1) above is that if you are selling and buying in the same area (or maybe in another area) you will enjoy lower purchase prices as well, so in many cases you will get a similar discount on the purchase, and it cancels one another out. In case (2) I really can't feel too sorry for those who took out loans that were larger than they can afford. They took a gamble and it is not paying off. Some people like to play on emotions and say people should be protected from getting kicked out of their homes, but in actuality these places should have never been their homes in the first place, otherwise they could afford their payments. Politicians, such as Hillary Clinton, want to help these people and have been proposing ridiculous solutions:

I have a plan - a moratorium on foreclosures for 90 days [and] freezing interest rates for five years, which I think we should do immediately,

And Edwards, not to be topped, has proposed a longer freeze of seven years. These plans at best are useless, at worst illegal. How can the government step in and re-write legally-binding contracts? A moratorium on foreclosures will merely postpone the inevitable. However, illegally forcing freezes on interest rates makes no sense. First, these are risky loans, and investors have purchased these notes (as you've probably noticed mortgages are sold and re-sold often) knowing the risks and expecting appropriate returns in return for the default rate. Second, this will only cause subsequent loans made by the banks to be abnormally high as they will need to recoup these costs, which will further drive down housing prices. The main reason housing prices appreciated so rapidly was the availability of cheap money. I defy you to find a time where prices rose and interest rates were high.

The only way to resolve the housing issues is time. The current interest rates are very low and still falling. Most likely there will be 15 year mortgages under 5% by the end of January for credit worthy investors. This is of course due to the Fed cutting rates to 3.5% and will probably drop soon to 3.25% or 3.0%. The last time rates were this low is May of 2005. This will help lower the reset rates on subprime loans and maybe prevent some of the foreclosures. But only time will help set the new equilibrium of housing prices, where the spread between bid and ask prices are $0.

While it feeds the pationate emotions of the desperate, the bleeding hearts, and voters to force a solution to save all the unfortunate people losing their homes, and it might make you a hero come election time, it doesn't allow the natural forces to correct inequities. People used to complain that house prices were so high and unaffordable, that was fueled by easy money, and now will be corrected at the expense of those who took the easy money, but never had the means to repay it.