In the private sector, as in public policy, sometimes blinders prevent one from seeing the entire landscape, and a good example of that may be the current status of the U.S. housing sector.

Banks, mortgage lenders, mortgage-backed securities holders and public officials have tended to focus on the plight on subprime and comparable mortgages, and rightfully so, as these loans constitute the largest pool of non-performing assets secured by homes.

U.S. housing: A psychological shift

Still, as economist Glen Langan points out, the unusual focus on subprime has caused the nation to overlook a broader trend regarding the housing sector -- namely, the psychology of the housing market.

"What we're not grasping yet, as a nation, is that even with programs to help people stay in their homes and avoid foreclosure, the public's stance toward the housing market has changed," Langan said. "The psychology of the housing market has changed. And this has little to do with at-risk mortgages. This a psychological shift among middle-income and upper-middle-income homeowners and taxpayers. It looks like they'll be sitting on the fence for a long period of time, and this will delay the housing recovery, hurting the economy in the process."

What's at the root of the psychological shift? Langan said factors that clearly indicate that tougher economic times are here and up ahead (higher oil prices, food prices, job lay-offs and little or no U.S. economic growth) combined with high home inventory levels -- about a 9.5- to 10-month supply at current sales rates -- telegraph to Americans that, unless you live in an oil boom town, median home prices are not going to recover any time soon, "not this year, and probably not in 2009."

"Now, in a market with these kind of characteristics, why would a young couple or a single, first-time purchaser buy a home?" Langan said. "You wouldn't. You'd wait, of course, and that's the psychological shift, the expectation that buying now is foolish because prices aren't likely to rise, that'll delay the recovery in housing."

Further, Langan underscored that Americans' changed attitude toward housing cuts across society -- it's not simply a view held by 'first-time buyers' or 'young couples starting a family.' Also, in that the mortgage assistance programs lower foreclosures, they do help the sector, he said, but they don't eliminate (or reverse) the psychology of the current housing market.

Even more significant, Langan said what the nation may find is that in the quarters ahead foreclosure rates may decline, on-time mortgage payments increase, but home sales still don't rise ... and median home prices continue to fall.

More pump-priming?

A sobering projection, to be sure. But is life in housing's state of nature, to paraphrase Hobbes, all nasty and brutish? Not quite.

Langan said there is an antidote, but there may not yet be enough political support to pass the policy: a home buyer tax credit.

Langan argued that, ultimately, the U.S. Congress may have to authorize a temporary tax credit for home buyers to encourage more activity -- more home buying by fence sitters to stop the upward trend in inventories, and by extension, stop the downward trend in prices.

The home buyer tax credit could match a percentage of a home buyer's down payment, up to a maximum: for example, a $3,000 annual tax credit for five years in moderate-price regions, up to a $10,000 annual tax credit for five years for the high-cost home areas of New York, San Francisco, Boston, Los Angeles, etc.

Nevertheless, some may counter that the market should be left to itself, that the nation should let the housing sector recover naturally, when the fence sitters start buying. "That may sentence the U.S. to a very long economic slump," Langan said. "There are going to be a lot of fence sitters in this market."

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What's your take on the housing sector? Do you think homes prices will recover in your region of the United States by early 2009? Or are prices likely to remain the same or fall more? Let us know how things are where you live.