The Elephant in the Room

In short ... demographics rule.
The sub-prime mess is a pimple on the elephant's ass.

Developments : Why Baby Boomers May Bust the Housing Market:

"Think the current housing downturn and the subprime mortgage mess is the worst of the housing market’s problems? Not so, according to a report published this month in the Journal of the American Planning Association."

And there is nothing politicians can do about it, other than , maybe, curb building.
The "pig in the python" keeps moving along.

"About to wreak havoc on the housing market are the 78 million American baby boomers who will “retire, relocate, and eventually withdraw from the housing market,” according to report authors Dowell Myers, a professor of urban planning and demography in the School of Policy, Planning and Development at the University of Southern California, and SungHo Ryu, an associate planner with the Southern California Association of Governments.

Using demographic data to show that individuals in their mid-60s tend to sell more often than buy, the authors contend that when boomers — a “dominant force in the housing market” — start reaching the age of 65 in the year 2011, a market shift will occur. Some retirees will be looking to downsize, others will relocate to warmer climes, while others will move to nursing homes, says Mr. Myers. As they transition out of the housing market or look to sell their homes, in some states there will be “more homes available for sale than there are buyers for them.” Home prices will soften.

The “sell-off” will create a sizeable hurdle for the housing market, because as Mr. Myers puts it, “It isn’t money that buys property, it’s warm bodies. If you don’t have enough warm bodies to fill up the space, the space stays empty.”

The report points out that the ratio of those aged 65 and older to working age (25 to 64) adults will increase by 67% between 2010 and 2030, and that when these older adults try to sell their “high-priced homes” to a “relatively smaller and less-advantaged generation” — a cohort whose buying power was diminished through the housing boom’s price increases — there will be more homes for sale."