Cramer: Map to a Housing Bottom

That's why we need the FDIC to own more banks and more banks like Wells to work it through and more money from the FHA. You can see how the system is being overwhelmed by the simple equation of demand vs. supply. In 2006, for example, 7 million homes changed hands. Slightly more than 2 million were new homes. In 2008, we get half the number of new homes being built, but we are going to regurgitate 3.5 million homes that foreclosed. That gives us 3.5 million more homes on the market than we need

Historically, we get about 800,000 new homebuyers naturally in this country because of household formation demographics -- marriages, divorces, kids and the like. If you believe they all bought new homes we would still have 3.7 million more homes than we need. That's the real issue.

So, if you attack the problem that way, you can see that anything that keeps people from getting foreclosed will cut back that 3.7 million, and anything that gets people to want to buy -- tax credits for buys, lower prices for homes and perhaps a nationalization of Fannie (FNM) and Freddie (FRE), which would reduce the price of money to buy homes -- will work off the problem over time.

If you really wanted to get granular, you can chart out what happens rather easily. The default rate on homes spikes in the first two years, particularly these years, because of all of the fraud and recklessness. Two years ago was the height of the fraud, and it continued unabated for seven more months. Right now I would venture -- we don't have hard figures -- that maybe a quarter of the defaults that will be part of the 7 million have already occurred. We're going to get the rest of the three-quarters in the next seven months. The maximum pain is in these next seven months. Once the two years that began tolling at the end March of 2007 -- the last of the really bad lending practices period -- occurs, you simply cannot have more increases in homes being foreclosed on, because you didn't have nearly as many purchases, and many of the corrupt lenders were flushed out.

Or in English, the problem peaks over the next seven months even without any intervention or stimulus or plans.