for the real estate industry.

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WASHINGTON (MarketWatch) -- Senators have struck a deal to extend a popular tax credit for home buyers beyond those buying their first house, Senate Majority Leader Harry Reid's office said Wednesday.

Legislators also have agreed to extend the tax credit through the end of April, according to a Reuters report.

An $8,000 credit for first-time home buyers is set to expire at the end of November. Under a compromise reached by senators, the credit would be expanded to those who have lived in their home for five consecutive years, a Reid spokeswoman said.

The credit for repeat buyers would be $6,500.

The credit reportedly would be available for individuals making up to $125,000 a year and couples earning up to $225,000 per year, up from the current income limits of $75,000 and $150,000, respectively.

Reid wants to attach the tax-credit measure to a bill that would extend unemployment benefits.

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I find it noteworthy that the proposed credit would be expanded into the upper middle class (couples making $225K) and to those who have lived in their homes for at least five years...to purchase a second home. What are these Democratic senators thinking? These people don't need more taxpayers' help; they already get (and got) a lot. Meanwhile, this just adds to our debt, postpones the day of reckoning for when home prices must finally return to reality (they are still out of line with rents), does nothing to help the truly needy and instead helps those who've already gotten help.

I'm thinking about changing my party membership. The Dems seem to be a pandering corporate party these days. Of course I won't be choosing the GOP, as they are simply obstructionist, while remaining even more corporate than the Democrats.

Gee; where do you suppose those landlords are getting the homes they are renting? Could it be that they are more heavily subsidized than homeowners? Or could it be that the rentals really aren't the equivalent of the homes they are being compared with? Oh; I see - they are altruists. I really think you are leaving something out in these comparisons.

I fail to see what the new senators' "agreement" has to do with landlords. The senators are merely shoveling more money at the real estate industry and buyers pretty much across the board. Like Proposition 13, it is a meat axe approach to surgery, a blunt instrument which will benefit many people who don't need help, and to the extent it props up home prices (which are still above what incomes and rents would justify) push housing further away from potential homebuyers absent the credit. And since the majority of homebuyers during the next six months would be buying anyway, the cost to the govt. per additional home purchased is much more than $8,000. In light of the recent weakness of the dollar and record and unsustainable deficits, this is also tantamount to giving the finger to our foreign creditors, who will eventually wise up and dump dollars. At least the senators are playing Chicken.

As for comparability in rents, I don't think it's as difficult as you are implying. Surely, there are houses in your neighborhood which are being rented out?

Pre-crisis sales volume in the housing market were built on speculative buying. A lot of people did buy because houses were appreciating so fast. Nothing the government can do will return the market to those sales volumes, in part because the more artificial support they give to prices the more difficult it is for houses to find a natural level, and at this point they need to find a natural level before they can start appreciating much. Also because it must be assumed that any support cannot be indefinite, given the fiscal situation of the federal government.

The housing market is going through an adjustment in values. The market probably wont recover to the point where it can justify the prices many houses sold for at the top of the bubble so anyone who waits for the that to happen is in for a long wait. (Depending on local market conditions). This market adjustment must take place.

So one could say that anything the government does which speeds up sales without excessively supporting prices is a good thing in that it speeds the market adjustment taking place, the downward adjustment in values. This means taking the view that we are supporting a short term sales volume in excess of what our long term goal is. So since I think it isn't possible to re-create the former sales volume and prices but that it is possible to give a short term boost to sales I would support the extension, but not the expansion of benefit.

Of course accelerating the market adjustment isn't what policy makers are aiming for, since they want to ignite a sales volume which will return prices to their former levels, and they want to do that to benefit the balance sheets of banks, not for any popular reason.

An alternative to the credit would be a national clearing house for foreclosed properties that works. However since this would certainly speed up the deflation in house prices that also isn't likely to happen.

At this point they need to find a natural level before they can start appreciating much.

I'm not so sure of this. According to Case Shiller, home prices in most cities have risen every month since March--just about when the homebuyer's tax credit was put into place, and perhaps not coincidentally at the same time Bernanke embarked on his Quantitative Easing campaign and when the dollar peaked and started its 15% descent. It would appear that artificial stimulants like the tax credit indeed did turn around the two year long continual cratering of home prices, and there is little historical precedent for this. Philosophically, I wonder if govt. ought to be meddling in the market encouraging sales of homes and new cars, but not other items, which actually might be of greater social value?

It is possible to give a short term boost to sales.

Yes, and in fact it seems to be possible to at least temporarily give a short term boost to prices, as well (the C-S index is up over 10% since February in many cities. Tax policy certainly distorts and has effects on individual markets. Tax cigarettes an additional $5 a pack, and sales will definitely fall. Give each homebuyer $8,000 and sales will rise and prices also. Theoretically, it would seem possible for govt. to restore home prices and sales volumes to their 2006 levels by simply printing enough money or by funnelling enough money to the housing sector, perhaps by bestowing yet more tax goodies on it. But this would not be a socially useful goal in my opinion, even though it might be considered as such by many politicians. Republicans might favor this to shore up banks balance sheets while Democrats could claim it was a populist move. One thing's for certain: if the two parties actually unite in a common goal, our goose will be well and truly cooked. We're getting very close right now...dangerously close to wishful, delusional thinking.

Well we should differentiate between simple price fluctuations and a dynamic which works toward making up the 20%-30% losses we have seen. Of course prices don't remain static. Prices have risen, but not enough to pull sellers sitting on the sidelines into the market, and I think the idea behind extending the credit is that without it prices will stop appreciating.

I must apologize for giving perhaps haphazard posts, I am currently basically doing day care, and it is difficult for me to give posting the thought it deserves, much less get time to do it at all. So if you bring up perfectly worthwhile points that I don't address it's not that I am not intrigued by them it's just that, well, I need to change a diaper now! Actually get the boy out of his pajamas and get him some juice at the moment, but you get the idea.

Always enjoy responding to your posts when I can understand their main points, and lately they seem to be much better written and clear to me. I think maybe you've assumed the position of Scott_Too, who hasn't posted here in the last three or four years--an unassuming, un-arrogant and likable poster with an equanimitous disposition: open to both sides. I lean more towards the polemical side, but you often make me reconsider some of my assumptions.

I'd have thought you were a bit too old to be changing diapers. Are you a grandparent or just enterprising for your age?

Enterprising or foolish is open to debate, 49 years old with a two month old and a three year old, so you take your pick on the judgement.

Thanks, I really have been working on my clarity.

"As for comparability in rents, I don't think it's as difficult as you are implying. Surely, there are houses in your neighborhood which are being rented out?"

I don't think there are very many rentals in my neighborhood. I judge this by the fact that I see the people who live in the houses making improvements - not contractors, but the residents themselves.

In any case, I think it is fair to ask what the financial advantage that landlords have which allows them to charge less than their cost for rent. This is especially pertinent now that the reports are that rents in a number of cities are higher than homeowner costs.

Gingham: Prices have risen, but not enough to pull sellers sitting on the sidelines into the market, and I think the idea behind extending the credit is that without it prices will stop appreciating.

LeRoy: I think this is an understatement. I think that if the credit expired on November 30 as originally intended, housing deflation would resume in full force. As Genedio points out, housing prices are still above the level that current rents would imply they should be, at least in most cities. And with foreclosures coming onto the market, I think many people might be shocked at the rate at which housing prices would again fall, were the tax credit to expire. And I think that is what is motivating the politics of this: Congress (and the rest of the government, including presumably the Fed) is scared senseless of the consequences of another round of rapid home price deflation. Consumer confidence would plummet, retail sales might well collapse (they are already deeply worried about the upcoming holiday shopping season as consumers are slamming their wallets shut), and this would lead to another inevitable round of layoffs and possibly retail bankruptcies. In short, we are still poised on the precipice of a depression-level economic downturn, despite the 3rd quarter GDP numbers, which were indeed inflated by all the artifical stimulus the government is applying (Cash-for-Clunkers, the home buyer tax credit, and the stimulus program itself).

Having said all that, I am still in agreement with Genedio that this is all atrocious public policy. And I say that even though I took advantage of the home buyers tax credit myself. [I felt I had little choice: if you can't beat 'em, join 'em.] We are artificially 'juicing' the economy with all these 'special' incentives. What happens when the juice is turned off? An ugly collapse, in all likelihood. Again, the question: would you prefer your Great Depression II now, or would you prefer it later?

I used to have a very hard time understanding some of your posts, but that has not been the case at all for roughly the last six months or so.

and from Democrats, no less. Gee, thanks for agreeing, Leroy. I guess one either intuitively gets it or one doesn't. When Ronald Reagan started borrowing $200 billion every year to create his phony prosperity, instinctively I recoiled and called it unsustainable--and unfair to boot. That is exactly what I think of what Team Obama has been doing. Perhaps it is not coincidental that Obama referred to Reagan as a "great president"? Now we have the Democratic majority in the senate extending and expanding a popular program--which to the average American eye has only winners and no losers. This is not the Democratic Party I signed up for nearly 40 years ago. That party had at least some fiscal discipline and did not choose to aid the already well off. I will join the largest political party: the Independents, for what it's worth. I've witnessed too much corruption with the Dems. Kucinich, Kaptur, and Grayson don't represent the party and even they are today likely to sign onto pandering bills like this one.

I think that is what is motivating the politics of this: Congress (and the rest of the government, including presumably the Fed) is scared senseless of the consequences of another round of rapid home price deflation. Consumer confidence would plummet, retail sales might well collapse (they are already deeply worried about the upcoming holiday shopping season as consumers are slamming their wallets shut), and this would lead to another inevitable round of layoffs and possibly retail bankruptcies. In short, we are still poised on the precipice of a depression-level economic downturn, despite the 3rd quarter GDP numbers, which were indeed inflated by all the artifical stimulus the government is applying (Cash-for-Clunkers, the home buyer tax credit, and the stimulus program itself).

I think you have painted an accurate portrait here, but my point was that a measure like a homebuyer's tax credit is simply another form of what the American real estate industry--as opposed to the European, Asian, or Australian real estate industry-- has been treated to for many decades. Wasn't the home mortgage interest deduction itself a response to the depression of the 1930s? I could see these tax credits becoming permanent, becoming yet another freebie benefiting mostly the already well off and adding to the national debt. Philosophically, I could support measures like the present if they were in abayance during booms, as Keynes proposed. But these props have become a permanent feature of American life. This is a misuse of socialism or Keynsianism in my book. This is simply counterproductive social and financial engineering, and hastens the day when we are no longer a great power.

So while I generally supported Obama's stimulus programs where they were likely to increase future productivity, production of alternative fuels, repair fraying infrastructure, or train Americans in new technologies, I can't support governmental meddling to prop up over-priced consumption and to actually restore the very bubble which caused the financial crisis. This is criminal.