Can anyone explain why the government feels it is intrinsically good to keep house prices artificially high? Is it because most in govt own homes, need votes, have no balls and no understanding of economics and free markets?

The government is not trying to keep homes artifically high. If they were, homes in Michigan, Ohio and Texas would be worth much more than they are. Rather, the government is trying to prevent foreclosures, not keep home prices higher than they are. Large numbers of foreclosures all in a short period of time means that lending instutions (banks) potentially loose enormous amounts of capital, which in turn makes them weary of further lending for fear of dwindling assets. This causes credit markets to tighten drastically and the eventual slowing of the economy (or even a recession--which I think we're now entering). Jobs are lost because institutions are not as well funded. People out of a job can't feed the economy or afford their home. More foreclosures occur. Credit markets tighten further. The economy slumps even more. Instutions are now getting funded even less now. More jobs are cut. The economy is fed even less. More foreclosures occur... you see how circular it is. To answer your title, high house prices are not necessarily good. Stable house prices are good.

And high oil is bad for the most part (except for those who own zillions of barrels of oil). Oil is high now not necessarily because of limited supply, but because of speculative investing due to a weakening dollar and that nut-job Hugo Chaves in Venezuela.

Hope that answers some questions.

Thanks for taking the time. Your explanation makes sense, but if the government were to leave this alone and let it play itself out we would still have 400 million people in need of shelter and roughly 400 million "shelters" - they would simply be worth less and, as the article posits, people would be there to move into them - only now they we get much more for their money and from that transaction, improve their standard of living. We would still have people in need of loans and people who see an opportunity to make profit by extending loans. Only when some legal entity attempts to maintain the status quo (keep the current winners where they are, lest they suffer some harm such as losing a great job or an overpriced home) only then does the market become sick - the kind of sickness that lasts for a good 5 years because no one trusts it anymore. If they let things unwind on their own the market will take care of itself. When the govt eliminates risk or forgives bad decision, they eliminate future reward. That is what results in a tighter credit market in the long run - and it will be a long run if they don't leave this alone.

you forget a couple of key factors:

1. Houses are most famililes single largest investment.
2. If your neighbor's house falls in value by 25% because of foreclosure it also pulls down YOUR house value and YOUR retirement investment. This makes you both less able to and less willing to spend
3. Very few people can afford to buy houses without the help of a bank
4. Banks ability to lend are dependent on having "good loans" on their books. When they have loans they expect to go bad, or which they cannot tell are good or bad, they LEGALLY have to set aside cash to cover those bad loans. And that is cash they cannot lend
5. It COSTS roughly $75/sqft to build a moderate income home. Plus land cost. That means the average new home is going to cost $200+ (2000sqft ==> $150k+$50k+ for land) and this generates some $1 Trillion worth of jobs

#1, #2, #5 essentially cripples the economy if you let housing prices plummet BELOW fair value

#3 and #4 demonstrates that houses are only "overpriced" in your opinion. The current downturn in values is being driven more by a lack of lending than by the inherent "overpricing" of houses.

As for the "market will take care of itself" - that all depends on what you mean by "take care of itself". Will it reach an equilibrium? Sure. But is that equilibrium going to be one that helps expand or contract the overall economy? That is a completely different question.

We know from history, that unregulated markets get distorted in their own ways and suffer from more dramatic booms and busts. And we also know that over time, big Boom/bust cycles result in LESS NET GROWTH.