The American housing market is in the depths of a major "correction". As housing prices started to outstrip American's ability to pay the mortgages either the bubble had to stop inflating or the safety mechanisms had to be disabled. We went the route of 100 year interest only balloon mortgages. The school of thought went that consumers ability to pay was irrelevant because the value of the asset will continue to appreciate, ooops.
My thought on this is that the housing industry should take a page from the Auto Industry. Cars long ago outstripped the consumers ability to pay for them, yet they have been able to hang onto the sales by introducing the concept of leasing cars. Once you waive the "right" to ownership you get to drive the exact same car as somebody else for much less money. Why can't we "lease" homes? Let's say a house bought in 2006 for $400,000 is now worth $250,000. The Homeowner is now $150,000 underwater and the bank is verrrry nervous. Go to the Homeowner and have him lease the house for $1,800/month (+ taxes & insurance)for 60 months. This takes the home off the market for 5 years and lets the homeowner see a light at the end of the tunnel. Everybody knows at the end of 60 months the house goes back to the bank.
There are a lot of variables in play but this general workout could make the banks AND the consumer a lot more solvent.
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