How to stabilized the housing market

Much has been said about keeping struggling homeowners into their houses, but in the long run the question is are these people going to be able to keep up with their re-negotiated mortgage payments or are we just prolonging the inevitable? The most likely conclusion is a combination of the two. We will save some people from foreclosure but many others will be unsaveable and we will prolong the agony of falling home prices for another year or two.

The long term solution is to stimulate home buying. Prices fall because of basic economics – supply exceeds demand. To create stability or possibly higher prices the government needs to enact some home buying stimulus in order to create some artificial demand until we get equilibrium into the market.

In August congress past a $7,500 tax credit for 1st time home buyers, but this is actually just a credit that is paid back over a 15 year period. What congress needs to do is create tax incentives that are powerful enough to spark a massive home buying spree. This will get the fence sitters off the fence and create demand that will catch up to the supply and eventually raise home prices. This will slow down and eventually eliminate the majority of foreclosures as home values will once again rise above mortgage balances.

Here are some suggestions:

• One time tax write off of $15,000 or 3% of purchase price (whichever is less).
• Double the interest tax deduction for the first three years of ownership.
• Waive taxable income on profits from investment properties purchased in 2009 and possibly even 2010.

Any thoughts on what you think congress could do to spark home buying activity?