Quotes of the Day

Time for more housing stimulus. The question is how.

According to numbers released today by the National Association of Realtors, home sales fell 3.8% in May. They were down 15% from a year ago. Home prices were down as well, 5% lower than a year ago. And while 4% might not sound like a big drop for sales, for this time of year it is. May and June are typically prime home buying months. Most people like to move in during the summer so they can have their kids in by the school year. Plus houses just look better in the Spring. So these two month typically dictate how well the housing market will do all year. And if that is the case, the housing market is going to be pretty bad for a while. The number of homes sold in the U.S. in the month, about 450,000, was only slightly better than what home sales were two years, which was the worst May on record.

Perhaps a worse sign for recovery is that first time home buyers are exiting the real estate market faster than other buyers. And again this is particularly bad news in May, when people looking for their first house typically make up a larger share of the home market. A year ago, first-time home buyers made up 46% of the housing market. A year before that it was 47%. Last month, first time home buyers accounted for only 35% of the market. Yes, there were tax credits last year, but those credits were for everyone not just first time home buyers. And historically, first time home buyers have made up about 40% of the housing market.

The question is what to do about the housing market. The knee jerk reaction would be that we need to bring back the home buyer tax credit. But some economists say that's not the answer.

Senior economist Celia Chen at Moody's Analytics thinks reinstating the home buyer tax credit, which allowed buyers to get $8,000 off their income taxes when they bought a home, probably won't do much to boost home sales or prices. That's because we have already had two rounds of that stimulus program. And she thinks everyone who wanted to take advantage of the housing credit probably did. But there is another reason bringing back the housing tax credit might not work. Credits like these can increase demand because people believe they are temporary. Once you keep bringing them back that no longer is the case. So it all gets built into the price. No reason to buy now because if you don't and all your friends don't, and all their friends don't, then the government is likely to bring back the tax credit anyway.

1) Help people keep their homes. Throughout the housing crisis, one of the government's biggest failures has been foreclosure mitigation. And the rising number of foreclosures has been one of the biggest drags on the housing market. Even if people aren't losing their homes today, most buyers know that there will be more homes at lower prices coming on the market so. So why would anyone buy. If we could reduce the number of foreclosures, home sales might start to go up again. Right now, pretty much everyone has concluded the government's efforts so far have been subpar. Just announcing a new program might been enough to boost confidence in the housing market, and stabilize prices.

2) Force banks to fix their foreclosure problems. Housing market economist Thomas Lawler did an interesting study recently. He looked at two housing markets in the metro D.C. that were pretty similar, expect for the fact that in one county prices were rising again, and in the other home values were still falling. What was the determining factor? Foreclosures. In the market that had recovered, banks had had an easier time foreclosing. That cleared the market of homes being sold at depressed prices. In the other market, where people are stuck in foreclosure limbo, prices continue to fall. Having people kicked out of their house is not the optimal solution. But forcing the banks to either modify loans or get on with the foreclosure seems to be the best medicine for the housing market.

3) More Jobs Market Stimulus. The biggest factor that boosts the housing market is more jobs. People buy houses when they are employed. They don't when they are collecting unemployment checks. So the best way to stimulate the housing market is to start with the jobs market. In today's Wall Street Journal, Princeton economist Alan Blinder says his favorite idea to boost the economy is for tax credits for companies that add workers to their payrolls. That's probably the best idea to boost the housing market as well.

• Stephen Gandel
• Here are three things the government could do to boost the housing market