The belief that a house is worth what you can afford as a monthly payment is what got us into this mess in the first place. It occurred because of several economic “events”:

- The reduction of interest rates via the fed to spur business investment (lowering housing payments was just a latent benefit)

- Low payments via inventive mortgages with short term rates and uneducated home buyers paying more and more (because the last dolt just paid more!) was the problem.

- The devastation of the value of the dollar caused commodity prices to shoot up (remember $140 oil) causing material costs to skyrocket.

The value in these houses was never there…it was a fantasy, and trying to recreate that environment is not a solution. As soon as inflation starts showing its ugly head the federal reserve is going to start buying back treasuries and interest rates will creep up (hopefully not early 1980s style). If this happens too soon it will stymie the government stimulus. If it happens to late inflation will make your dollars worth considerably less so while your home value may appreciate in nominal dollars…the real inflation adjusted value of that house will be flat.

One way or another prices will come down some more be it in today’s dollars or tomorrow’s dollars.

Donovan Wadholm
http://www.diybizplan.com