Many economists and housing market analysts have pointed out that for the real estate market to really start its way up, it needs to reach bottom first. Each of them suggests that for this to happen, the U.S. government should leave the market alone. Now, though, an economics professor at the Harvard University says such a move will be suicidal and that in fact more U.S. aid is needed to save the housing market.

Martin Feldstein, who was once chairman of the White House Council of Economic Advisers during the Reagan administration and currently a member of President Barack Obama’s Economic Recovery Advisory Board, predicts that U.S. home prices are due for another decline. With the ending of the first-time home buyer credit last April, the decline is inevitable according to the professor. The decline can only be prevented, says Feldstein, if the government comes to the housing market aid and provides a program that will allow owners to refinance mortgages.

As Feldstein explains, with the foreseen fall in home prices and the lack of equity in homes, defaults and foreclosures will also increase. This will then put more homes in the market, further driving prices down.

The $8,000 government tax credit lifted home sales in late 2009 and early 2010. It also prevented a fall in property values. If the government wants to have the same effect on the housing market right now, then a new program should be implemented to reduce principal mortgages and allow refinancing of homes that are underwater.

Feldstein, who is also the former president of the National Bureau of Economic Research, advised the president that a demand and boost recovery will be stimulated if income tax cuts are extended. President Obama plans to extend the tax cuts passed under the administration of George W. Bush. The tax cuts are given to households earning less than $250,000 and individuals gaining up to $200,000 – these will lapse on December 31 for those earning more than that.