The economy will not begin to recover until home prices stop falling. That's what smart people counseled a year ago as things collapsed from Wall Street to Los Angeles, and they were right.
Well, home prices have stopped falling. Yesterday's Case-Shiller report, the best measure of nationwide housing values, showed that prices rose in July for the third month in a row. They're still way down from a year ago. But starting in May, prices began to rise from month to month. For the three-month period they're up 3.5 percent - $7,000 on a $200,000 house.
So it may seem perverse to recommend ending the tax credit for first-time homebuyers that helped turn things around. But since the country no longer seems in danger of entering a new Depression, letting the credit expire Nov. 30 is the right thing to do.
It's expensive. We have to start weaning the economy from the high-test at some point. Let's see if low prices and low interest rates can keep people buying houses without a big, fat $8,000 gift from taxpayers.
The housing industry that enabled the boom and crash is pleading with Washington to extend the credit. There are several bills that would do so, including one pushed by Maryland's Sen. Benjamin L. Cardin. The National Association of Realtors would also like to expand the credit to $15,000 and offer it to those who already own a home and want to trade up or down.
"There is more to be done," Cardin said of the tax credit in a prepared statement. "While we look for additional ways to help the housing industry, a six-month extension is a fiscally responsible way to provide adequate time to nudge even more prospective homebuyers off the sidelines."
Let's talk about fiscally responsible.
Nobody knows how much the credit is costing. Like the "cash for clunkers" auto stimulus, the housing incentive is proving more popular than expected.
This month the Internal Revenue Service reported that 1.4 million families had benefited from the credit so far. If most qualified for the maximum, $8,000 credit - a reasonable assumption - that's $11 billion and counting. Don't be surprised if it's more than $15 billion before it's over.
True, this is peanuts compared with the overall stimulus cost of $787 billion and all the other money the government is blowing on bank bailouts and whatnot. But we can't stimulate the country forever. And the economy has reached the point where it's appropriate to remove some of the training wheels.
