In many areas, housing is still unaffordable as compared to incomes.
And in an economy with wages and employment shrinking and credit tightening, housing will have to come down in price to reflect the greater risk and uncertainty in the economy (higher cost of credit) and less money (shrinking wages). The Paulson plan won’t change banks or buyers perceptions of value or the current market trend, nor will it give buyers raises or homeowners money to make up for lost wages.
Housing prices falling to fundamentals is on balance much more of a Good Thing than trying to support them at a higher point.
And if any Democrats think that "renegotiation" will convince Joe Sixpack to work three jobs in order to pay off a mortgage balance which is 40% than his house will sell for, I have a lovely condo in Miami Beach I'd like to show them.....
Recessions are great for working out excess, lowering prices and creating buying opportunities for those with capital reserves. Maybe we will see a bottom in the next year and see buying happen again?