The U.S. housing market is a mess. Home sales have been incredibly weak ever since the buyer credit expired back in April. There are still many struggling homeowners out there defaulting and foreclosing. So many homes are underwater that even those who can pay are questioning whether or not doing so makes sense. And of course, a new fiasco has recently ensued with some banks and servicers revealing that their procedures weren't as clean as they should have been. This has slowed foreclosures and created fear among potential buyers. The likely result from all of this badness: home prices are bound to decline farther. Is there any way to stop that inevitable outcome?
In a sense, there isn't. There are still a significant number of borrowers out there who cannot afford their mortgage payments. A handful might find a solution in a modification program, but most will not. Until all of these borrowers finally are foreclosed on or complete a short sale, the inventory of homes will rise at an unnaturally fast pace. That will put downward pressure on home prices, particularly as buyer demand remains anemic.
Some government fixes attempt to solve this problem. The first was already alluded to -- mortgage modifications. Although this might help a small number of borrowers, it isn't a silver bullet. Re-default rates tend to be incredibly high, often exceeding 50%. So modifications actually prolong the market's misery as most of those borrowers eventually face foreclosure again anyway.