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?