I've never taken much interest in economics, but recently it has taken on a great deal of importance. A couple of weeks ago I saw a good report from Paul Solman on The Newshour with Jim Lehrer on the current housing situation and how the mortgage market precipitated the "crisis". This is really a layman's interpretation of what he said, but here is what I got out of it. Paul said that, going back a while, people went to the bank for a mortgage and put down 20%. The bank held the mortgage and the consumer paid them. It was a simple and secure system.

When there was so much turmoil in the stock market, people looked for stability and started buying mortgage backed securities. The demand for these securities grew but the supply of mortgages did not. Due to demand, lenders were put in a position of having to give more loans so that investors could invest in the securities. This lead to more creative financing and more loans given out than should have been. Investors then started borrowing in order to put money into these vehicles, somewhat like buying on margin in the stock market. So there was borrowed money investing in borrowed money which made the situation worse when those people who shouldn't have qualified for loans started defaulting. At least that's my take on what he said. For better information, you can go to the PBS website and look at some of Paul Solman's reports. You can even ask him questions online. The website is www.pbs.org/newshour

Another great analysis of the situation is in the March/April issue of The Real Estate Professional, published by The Real Estate Buyer's Agency Council (REBAC). The article by John Tuccillo is entitled Making Sense of the Current Real Estate Market, With a Look to the Future. This article also emphasizes that there is no national real estate market and markets with high inventories of houses, such as new construction, will take longer to recover.

Now the senate is working on measures to improve the market, such as incentives on the purchase of foreclosed homes and measures to keep homes out of foreclosure. These measures should help reduce the current inventory.