New home sales fell another 2.5 percent in May to a seasonally adjusted rate of 512,000 units. At this rate, about one million new homes will be sold by the end of the year. That's about half what both the National Association of Home Builders and the Joint Center for Housing Studies at Harvard says sustainable new home sales should be.

To get things moving from flat to fat, the NAHB wants a temporary home buyer tax credit.

Chief Economist David Seiders said in a statement, "Home builders have been doing everything they can to limit the production of new units and move existing inventory, but it hasn’t been enough to make a significant dent in the backlog yet. A temporary home buyer tax credit would help release some of the pent-up demand among potential buyers who are holding off on a home purchase in hopes of prices going lower."

Translation -- builders are screaming with pain, and they need help. They're telling their trade association that new home prices are about as low as they can go.

There's a good reason why builders and others would like to see a new tax credit to stimulate homebuying - it's worked before.

Remember the Tax Relief Act of 1997? That's when the housing boom really began.

The Tax Relief Act introduced dynamics that were missing from the housing market before then -- liquidity and mobility. Homesellers went from a one-time lifetime capital gains exclusion to being able to sell their homes every two years and avoid paying capital gains up to $500,000 a couple every time.

People like to point to the heated markets of 2002 through 2005 as being the boom years, but home ownership actually began to creep up years before as folks began to realize that the government would actually cut them some slack for frequent moving, second home ownership and investment.

But I doubt the government will comply with a new homebuyer incentive.

The problem is much of the rise in home prices was due to speculation and demands for more space, which builders met with enthusiasm. It's not the government's job to reward bad decisions. If that were true, then the opposite must also be true. When times are good, the government should ask for more taxes. And the government shouldn't stop with housing; they should reward consumers for buying SUVs and trucks.

You can see why the logic won't work.

What will happen is that the government will look at the example set by existing homes. The National Association of Realtors just reported that single-family and condo sales rose two percent in May, stimulated by prices 6.3 percent lower than in May 2006. Subsequently, inventories of unsold homes fell 1.4 percent.

The good news is that it shouldn't be much longer before homebuyers start making a dent in that 11 months inventory on hand, because builders will have no choice but to discount unsold homes even further and back off building more homes until qualified buyers can afford them.