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Americans still believe homes are still a good long-term investment. Unfortunately for the real estate sector, 30% of the same people think home prices will continue to drop compared with 28% who believe they will improve over the next year. That means the stand-off between buyers and sellers is likely to continue for the foreseeable future.

A new Gallup poll shows that “Many Americans also thought it was a good time to buy between 2003 and 2005, when housing prices were increasing and getting financing was relatively easy. Those attitudes began to change in 2006 as some home buyers began to realize a housing bubble was taking shape in local markets across the country.” The difference between 2006 and now is that people were actually foolish enough to buy homes in great numbers then. Recent low mortgage rates have not been enough to entice most buyers back to the market, even with home prices down 50% from 2006 peaks in some regions.

Real estate is no longer a buyers’ or sellers’ market, which is odd given recent history. Those who might buy a home are paranoid about the market’s future. Those who would like to sell a home often cannot continue to drop their asking prices. Eleven million US home loans are already underwater. Not nearly that many people are able to pay the bank the difference in price between their home loans and home values at the close of a sale.

Nothing that government has been able to do has broken the log jam in the housing market, with the exception of tax credits that expired a year ago. A similar program might help sales for the balance of 2011, but it would be difficult to get Congress to agree to a plan which would lower federal tax receipts in a time when government austerity is prized so greatly. The tax credit could do a great deal to improve the balance sheets of many American home sellers, which in turn would almost certainly improve consumer spending. But, politicians do not want to take a program like a real estate credit to voters. It has too many “ifs” to offer to a skeptical electorate. “If” a person gets to sell a home that they could not have before, they might buy a car. The trouble is that the money also might go into a savings account or to pay down a credit card balance. The impact on the overall economy is too difficult to predict.

People do not want to buy homes when future prices and employment are uncertain. This causes a larger and larger portion of the population to rent. Homes for sale will stay on the market longer. Some of these homes will eventually be rented out and not be sold. The number of Americans who own homes will fall as new home construction withers and the number will stay down for decades. The American dream of home ownership will give way to the dreams of renters who want no long-term obligations.

It is too early to write off Americans as homeowners. Real estate is still a good long-term investment if economic trends of the last 50 years and the mortgage deduction are any indication. In addition, home prices will become cheap enough to lure buyers, perhaps not at current price levels but at ones that are 10% or 20% lower. The price of the average house could hit a multi-decade low at least as measured in current dollars. Buyers will return to the market when it is clear that sellers are giving their houses away.

The federal government has elected not to help the home market with the revival of buyer tax credits. It has taken a neutral position now. The mortgage tax credit is still in place. Some deficit cutters would like to change that. If Congress and the Administration want to undermine what is left of the housing value market, an elimination of the mortgage tax credit would almost certainly be effective. The connection between the buyer and seller in the national home market is already thread-like. A break in that thread could take a poor housing market that could persist for another year or two and extend that period to several years. Homeowners would then become landlords out of desperation.

Americans want to believe that homes are still a good investment. That won’t happen, of course, if the government decides to make the homebuyer’s decision more risky and the home seller’s more desperate.

Douglas A. McIntyre