Did the Obama administration and the Democratic Congress rescue the home buyer market by extending a key tax credit last year, or just put off the inevitable decline?  Diana Olick reports at CNBC that it looks as though Democrats played kick the can, as mortgage applications dropped almost 10% after the tax credit expired:

As the end of the home buyer tax credit neared last month, we all argued whether or not the increase in sales and the relative price stabilization could survive on their own.

The first clues indicate the answer is: No.

One full week after the tax credit’s expiration, mortgage applications fell 9.5 percent; this as mortgage interest rates dropped below 5 percent.

Selling prices have begun dropping as well.  Ten percent of properties on the market as of May 1st have had at least one price cut since listing.  Thanks to a rise in foreclosures and a sense of optimism from sales reports in the beginning of spring, inventories of new homes rose — and now they don’t have the buyers.  Mortgage rates have begun to drop again across the board as demand declines.

Obviously, the tax credit enticed some people to buy, but we have seen no evidence that it created any more qualified or interested buyers than would normally have existed without it.  What the tax credit did, much like the Cash for Clunkers program did for cars, is encourage those who would have bought anyway to do so sooner than they might otherwise have done.  That allowed housing prices to artificially remain higher than they would have in a true correction from the housing bubble.  It delayed but did not prevent the inevitable revaluation of housing to bring prices back into line with long-term inflation and value trends.

Instead of dealing with the pain of this revaluation last year, we have done nothing but prolonged it.  The sharp drop in mortgage applications at a time when interest rates fell indicates the ongoing weakness of the housing market, and the folly of interfering with the proper market balance of supply and demand.  We need buyers and sellers to make rational decisions on investment and value, not continue the bubble mentality that just puts homeowners at risk in the short and long terms.

The only way to firm up the housing market is to allow for proper valuation and to get people back to work.  Had we adopted a posture of lower taxes and regulatory burdens instead of signaling exactly the opposite for the past sixteen months, we would already be well on our way to recovery.  Instead, we now find ourselves back to Square One after the expiration of yet another gimmick.