re: I'd rather it go to the state and local governments to cover the shortfall in taxes than to individual homeowners.

That's a much more expensive, much less efficient, and indeed much less fair answer.

Why? Because it also punishes the entire neighborhood, as one foreclosure brings down all property values.

Including yours.

artificially inflating property values is not helpful in the macro, long-term sense

Keeping people from being foreclosed upon does not further inflate property values; it merely helps to keep them from dropping so precipitously so quickly that what you are left with is urban blight, homeless, bankrupt citizens and bankrupt state/local governments that then have to be bailed out by the federal government, aka the taxpayer. Much of the "stimulus" is going to the states to help offset the losses in revenue they are experiencing due to falling property values and the taxes they once generated.

What you don't seem to get is whether you help the struggling homeowner, the banks or the local/state governments, you're still paying. What you and others want is some sort of storybook "fairness", without realizing that in doggedly pursuing this you're cutting off your nose to spite your face and playing right into the hands of the banksters, who wind up not only getting trillions of $ from the government but get to keep the property, to boot!

The question in all of this is: What gives you the most bang for the buck? While I argued vehemently for years that a housing bubble was being created (by Greenspan) and that this would be the end result, now that we're here, it's dumb to try to "punish" the average homeowner and ravage entire communities while bailing out the banksters with untold trillions of $. It is they who underwrote 125% LTV mortgages, not the homeowners.

However...

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The inventory of unsold homes remained high, rising 7.3% to 4.09 million in July. There was a 9.4-month supply at the July sales pace, matching the prior month's result. The high inventory could hold back a housing recovery.

http://tinyurl.com/m3uw3p

It's actually much worse than that.

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Banks aren’t reselling many foreclosed homes

A vast “shadow inventory” of foreclosed homes that banks are holding off the market could wreak havoc with the already battered real estate sector, industry observers say.

Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources…”We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market,” said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. “California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You’d have further depreciation and carnage.” (MORE)

http://tinyurl.com/c8lg4c

Also:

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NEW DATA SHOWS NEARLY ONE-THIRD OF ALL MORTGAGES UNDERWATER

More than $3 Trillion Worth of Property at Risk of Default

http://tinyurl.com/l3qxv2

About half of U.S. mortgages seen underwater by 2011

NEW YORK (Reuters) – The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.

Home price declines will have their biggest impact on prime "conforming" loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.

"We project the next phase of the housing decline will have a far greater impact on prime borrowers," Deutsche analysts Karen Weaver and Ying Shen said in the report.

"For many, the home has morphed from piggy bank to albatross," the analysts said. (MORE)

http://tinyurl.com/lv8tb9

re: That thing generates property taxes whether you own it or a landlord owns it.

By virtue of it being foreclosed, it and all of the other homes in the neighborhood go down in value, reducing the tax base.

re: if the house itself is the only thing creating the stable community, there's something wrong with the people who live there

Homes full of people who have an investment in the community and thus a real stake in it is what creates stability. Empty foreclosed homes don't; indeed, they bring down the whole 'hood.

This is simple stuff.

re: it's a great time to buy up houses in foreclosure for pennies on the dollar and sell them in 2010 or '11 for some nice, fat profits.

You're either a Realtor® or you're an idiot.

But I repeat myself.

Anyone who thinks real estate has bottomed out must believe that the economy has bottomed out.

Since the latter is not true, the former cannot be.

From John Williams at shadowstats.com:

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"The U.S. economy is in a multiple-dip depression. The grand benchmark revision of the national income accounts on July 31, 2009 confirmed that the U.S. economy is in its worst economic contraction since the first downleg of the Great Depression, which was a double-dip depression. The current economic downturn increasingly will be referred to as a depression, and it is far from over. There will be intermittent blips of new activity, such as the current cash-for-clunkers automobile giveaway program that appears to be generating a one-time spike in auto sales. Yet, this downturn will continue to deteriorate, proving to be extremely protracted, extremely deep and particularly nonresponsive to traditional stimuli."