Those debating the form of a new federal economic stimulus package cannot ignore the struggling housing market. It is the single-largest component of the U.S. economy, and its positive and negative impacts reach into every nook and cranny. Housing’s long-term prospects are bright due to positive demographics, and the market has the proven ability to lead the nation out of recession as demonstrated several times since World War Two. The problem at the moment is that the financial wreckage caused by irresponsible financial institutions needs to be cleared out, the surplus housing stock reduced and consumer confidence restored. A carefully crafted stimulus component can do all of that, and more.

Photo: AP/Wideworld

A new study commissioned by the Fix Housing First Coalition indicates a significant tax credit for all homebuyers from $10,000 to $22,000 (depending on Federal Housing Administration loan limits) with a subsidized mortgage interest rate of 2.99% would increase GDP by 1% annually, create 940,000 new jobs annually, increase average homeowner equity by $25,000 by 2012, increase aggregate homeowner equity by more than $2 trillion by 2012 and generate revenue at the federal and state levels that would exceed the cost of the program. That kind of public investment will surely pay better dividends than the hundreds of billions of dollars spent to bail out financial firms that largely caused the housing mess. Those companies seem to be more interested in executive bonuses, office renovations and corporate jets than America.

The long-term prospects for the housing market are good as “echo boomers” (the children of baby boomers) start families and look for places to live. That group now accounts for about one-third of the U.S. population. Contractors and exhibitors at the once-huge International Builders’ Show said they are optimistic about the future if they can get through the next couple of tough years and tap those potential customers.

Fix Housing First is a robust coalition of more than 600 organizations, homebuilding companies and manufacturers. On Jan. 15, Sen. Johnny Isakson (R-Ga.) introduced S. 253, a bill that incorporates much of what the coalition is seeking. The tax credit would cover all primary residences purchased through Dec. 31, 2009, capped at 3.5% of FHA loan limits, and only would have to be repaid if the house is sold within three years. The credit also would be monetized, so it could be used at closing. With the exception of proposals to invest heavily in the nation’s infrastructure, the housing proposal is a good one and deserves support. It will be accountable and effective.