Interesting theory about them letting prices fall. I agree that may become less involved with the market eventually but not until the economy has picked up the slack and prices are stabilized or moving up.
I think as an example of what could happen consider the stock market. At first the government was heavily involved with short sale bans, capital injections, bailouts, etc. Eventually the stock market came back on its own because it had over-corrected to the downside and had priced in a complete meltdown which didn’t materialize.
I believe that at certain price points at least the housing market may very well have over-corrected to the downside and now may be recovering a bit on peoples expectations that fundamentals will improve quicker than most people think. When the fundamentals improve to the point were banks are ready to lend again, the government will slip out the back door. This won’t happen IMHO for at least 2-3 years.
Of course, that is what I think will happen and I could be dead wrong. Time will tell.
