Artificially Inflating Housing Prices

I attempted to analyze this post by Henry Blodget and had some difficulty:

Here's the big problem with almost all the current rhetoric about the housing crisis: It presumes that the goal should be to get house prices rising again. The problem with that idea is that, even after a 25% decline, house prices are still way too high.

Even if there is a government mechanism that could stop house prices from plummeting and artificially pump them up again, therefore, it would just postpone the inevitable.

He uses the below chart to make his point:

Let's ignore the fact that Blodget's predictions have about as much credibility as the bible code, it's a scary picture. However, the data is horribly sourced and the calculations are not documented. There are many factors that roll into housing prices, especially mortgage rates (low rates increase buying power) that don't appear to be accounted for. As an example, mortgage rates were close to 8% on a 30 yr fixed mortgage in 1996, which was the start of the current boom. They are currently only 5.2%.

But back to Blodget's argument, the idea of the Obama foreclosure plan isn't to artificially inflate housing prices, it is to protect an all out collapse that would cause millions of families to lose their homes. The National Association of Realtors announced at the end of February that average existing home sales had fallen to $170k as of January from the $180k at the end of 2008. That is a complete collapse in housing prices. If foreclosures can be prevented, housing price declines will slow, and families who under normal circumstances can afford their homes, can keep them.