What's the best way to spur the housing market and save the economy?

A. $15,000 tax credit for homebuyers

B. Bailing out homeowners facing foreclosure

C. Mortgage rates reduced to 4%

D. All of the above

Looks like "D" is starting to become an option.  Republicans and Democrats can't seem to agree on what will work, economists and policy makers can't seem to agree, President Obama and the American people can't seem to agree....so i guess the thought is: why not throw all 3 options at the problem?

As economists and politicians are realizing that the housing market is in fact the core issue behind the faltering economy, it looks like a large portion of the ballooning stimulus package is getting aimed at stimulating the housing sector (besides all the additional pork that was promised to not be in there, of course...).  An article in The New York Times yesterday sheds some light on the debate going on in Congress over the now nearly $1 Trillion (you read correctly, that is a "T") stimulus package:

Having spent hundreds of billions of dollars rescuing financial institutions, only to see the economy spiral even deeper into crisis, liberal and conservative economists and lawmakers are pushing to redirect the economic stimulus bill to what they say is the core problem: the housing market.

“Most people recognize that housing itself is at the root of the current economic downturn,” said Mitch McConnell of Kentucky, the Senate Republican leader. “We should fix this problem before we fix anything else.”

Option A:

President Obama and senior Senate Democrats have also signaled that they would support Republican proposals for a $15,000 tax credit for homebuyers. Indeed, Senate Democrats were reviewing ideas on Tuesday that would outdo the Republican proposal by offering the tax credit to all homebuyers. Depending on the details, the tax credit would cost $6 billion to $20 billion, Democratic lawmakers said. Under current law, first-time homebuyers receive a tax credit of $7,500.

Option B:

Senator Kent Conrad, Democrat of North Dakota and chairman of the Senate Budget Committee, warned on Tuesday that he could not support the stimulus bill unless lawmakers redirected $50 billion to programs aimed at homeowners.  Mr. Conrad called for providing about $20 billion to expand foreclosure-reduction programs at the Federal Deposit Insurance Corporation, as well as money to expand an existing tax credit for homebuyers.

Analysts caution that any sweeping effort to reduce mortgage foreclosures would pose daunting challenges. The biggest challenge would be providing financial help to the three million people who are in real trouble without starting a rush to cash in by the tens of millions who are not.

Option C:

The Republican approaches are aimed much more at boosting the entire housing market, and would only provide indirect relief to families about to lose their homes.

Mr. McConnell has proposed that the federal government subsidize mortgages with a fixed interest rate of 4 percent to 4.5 percent. Fannie Mae and Freddie Mac, the two government-controlled mortgage-finance companies, would use their buying power in the mortgage market to drive the rates down.

The low rates would be open to any “creditworthy” borrowers, which would probably exclude many if not most homeowners who are now facing foreclosure. But supporters of the plan argue that it would help lift housing prices, which would make it easier for troubled homeowners to either refinance or sell their houses.

Option D:

But senior Democratic lawmakers are staunchly opposed to the plan, warning that the costs could climb as high as $1 trillion.

So I guess if you're a potential homebuyer, things are starting to look rosy....either that or you're feeling a growing bruise on your rear end from the big kick in the ass the government is giving you right into the housing market!  But might as well take advantage before the $1 trillion bill comes due in a few years.....

File under: Demand side vs. supply side - the debate goes on...and on...and on.