Check out this analysis from Steven Hansen at Seeking Alpha. The overriding logic is to take the pain, recognize that foreclosure sales are a method for rationalizing pricing, and that with increased confidence around price, and some confidence around employment, consumers will began to increase demand for homes. Increased demand combined with completed transactions will create the foundation for a recovery.
The counter to this point of view is that the shock that this rolling thunder of foreclosures puts on the system is so profound that despite its economic logic, the social spirit can’t bear it. That’s a reasonable concern, and policy makers are looking to make moves that will ameliorate the psychological effect of the foreclosures, the job losses and everything else that paralyzes the American consumer in a reinforced state of uncertainty.
We’re going to see how the stimulus plays out, if only because its enacted. A recovery will be a by-product of the “new normal,” as Hansen describes it. But a lot of observers feel that the cost of the stimulus packages being introduced to help us adjust to this new normal is ultimately going to surpress our standard of living and create a long-term drag on the economy.