As Gomer Pyle would say, “Surprise! Surprise! Surprise!” (search that on YouTube, kids). The U.S.  housing market has taken a frightening dive following the withdrawal of market-distorting federal government incentives. Sales of existing homes have dropped 27 percent in July over June levels, and new homes at an annual rate of 12 percent, the lowest rate since the government began tracking sales in 1963. Prices are sure to follow.

Buyers who snapped up overpriced inventory in order to grab a bit of that ever-popular OPM (other people’s money) will shortly find themselves underwater on their mortgage. Many of these new buyers will walk away from homes they suddenly have found to be bad investments.

Well-meaning tax credits have transformed a stabilizing, albeit depressed, real estate market into one engulfed by a full-blown economic panic that again threatens the entire U.S. economy. Worse, the fleeting illusion of demand created by the credits spurred construction of even more homes, the one thing this market absolutely did not need. The ratio of sales to excess inventory is now worse than it was when the last economic bubble burst.

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