Just some thoughts about housing market.

I think there are probably 6 groups of people in it:

1. Long-term investors looking for rental income, and only care about apartment demand and low buying prices.  They're the ones probably buying right now.
2. Short-term investors, known as flippers, simply looking to make a fast buck, and will over leverage themselves, believing that they'll get it all back and more, when they sell.
3. General investors who care only about their return, and thus will drop their investment at a whim, if they think the markets are bad.  They might invest in REITs, but because they see everything as an investment to make or lose money, including their own residence, they have no qualms about dropping their property, usually because they have more than enough money to ignore the hit to their credit rating.
4. Long-term homeowners looking to steady their housing costs, and aren't concerned about any price fluctuations in the market.
5. Long-term homeowners who could not qualify for traditional loans, but nonetheless got into the market.  They are the ones who were sold on the idea of steadying their housing costs long term, but could not normally qualify based on their income and credit history.  They've signed up for non-conforming loans and end up being over-leveraged.
6. Short-term homeowners looking to build fast equity to move up in the market.  They might be over-leveraged because they believe prices will continue to go up, or they might simply be opting for short-term loans (5 year or less jumbo) because their intention is to get the lowest rate and trade up in just a few years.

The point of this mental exercise, is to ask the question of which groups deserve saving, and which ones don't.  I'm all for saving the long-term investors, including those who didn't qualify for traditional mortgages and instead went for non-conforming.  I think intention is critical.  In the same way that we - currently - distinguish long term capital gains from short term, it may be time to distinguish the two, when it comes to housing.

(And by the way, of all the tax cuts set to expire at the end of this year, the capital gains reduction for the lowest two tiers and long-term investors, should be the most important tax cut to preserve.  This would encourage people to invest as opposed to parking that money in the bank.)

So how do you differentiate the long-term investor from the short-term?  I think the trick is to force the short-term investor to go long term, in order to receive help.

To be continued.