New home sales fell another 2.5 percent in May to a seasonally adjusted rate of 512,000 units. At this rate, about one million new homes will be sold by the end of the year. That's about half what both the National Association of Home Builders and the Joint Center for Housing Studies at Harvard says sustainable new home sales should be.

To get things moving from flat to fat, the NAHB wants a temporary home buyer tax credit.

Chief Economist David Seiders said in a statement, "Home builders have been doing everything they can to limit the production of new units and move existing inventory, but it hasn’t been enough to make a significant dent in the backlog yet. A temporary home buyer tax credit would help release some of the pent-up demand among potential buyers who are holding off on a home purchase in hopes of prices going lower."

Translation -- builders are screaming with pain, and they need help. They're telling their trade association that new home prices are about as low as they can go.

There's a good reason why builders and others would like to see a new tax credit to stimulate homebuying - it's worked before.

Remember the Tax Relief Act of 1997? That's when the housing boom really began.

The Tax Relief Act introduced dynamics that were missing from the housing market before then -- liquidity and mobility. Homesellers went from a one-time lifetime capital gains exclusion to being able to sell their homes every two years and avoid paying capital gains up to $500,000 a couple every time.

People like to point to the heated markets of 2002 through 2005 as being the boom years, but home ownership actually began to creep up years before as folks began to realize that the government would actually cut them some slack for frequent moving, second home ownership and investment.

But I doubt the government will comply with a new homebuyer incentive.

The problem is much of the rise in home prices was due to speculation and demands for more space, which builders met with enthusiasm. It's not the government's job to reward bad decisions. If that were true, then the opposite must also be true. When times are good, the government should ask for more taxes. And the government shouldn't stop with housing; they should reward consumers for buying SUVs and trucks.

You can see why the logic won't work.

What will happen is that the government will look at the example set by existing homes. The National Association of Realtors just reported that single-family and condo sales rose two percent in May, stimulated by prices 6.3 percent lower than in May 2006. Subsequently, inventories of unsold homes fell 1.4 percent.

The good news is that it shouldn't be much longer before homebuyers start making a dent in that 11 months inventory on hand, because builders will have no choice but to discount unsold homes even further and back off building more homes until qualified buyers can afford them.

Published: June 27, 2008

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Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.