The problem (at least if you are a buyer) is that the government has all kinds of tricks they can use to prop up the market. The government can encourage more zero-down loans, the Fed can buy $1 trillion in MBS at the drop of a hat, the Treasury can encourage banks to continue to hold on to all that inventory, the government can continue to suspend mark-to-market, and on and on and on.

The housing market doesn’t come close to resembling anything like a free market with all the government intervention. Hosing would probably be 50% lower if the government hadn’t intervened. If every buyer had to put down 20%, housing would probably be 70% lower.

I think the government has found a level for housing that they are comfortable with. They’ve bailed out all their cronies at the top and now we are likely to see a government-supported stagnant market that lasts for the next 10 years or so.