When my colleague Christopher Papagianis and I wrote about the housing sector for NR a few weeks ago, we called for ending the tangle of subsidies that props up homeownership, knowing fully well that this would lead to a steep correction in still-inflated housing prices. As Frank Ahrens of the Washington Post makes clear, the correction is coming soon, now that the homebuyer’s tax credit, a subsidy of minor importance when stacked against the mortgage interest deduction, has expired:

The bottom line is this: Government-subsidized programs that prop up troubled industries help for as long as they exist, but rarely create any lasting demand. It’s like a car with a bad battery that won’t hold a charge. You can use another car to jump the battery, and the car will run for awhile, but once that charge runs out, your car will stop again.

Ahrens believes that we’re on the verge of steep declines in housing values:

You’ve probably already seen the value of your home drop 20, 30, 40 percent over the past four years. That’s painful, especially because it’s the largest purchase most Americans will make in their lives. But today’s number – combined with the general economic malaise – tells us that home prices probably still have not hit bottom.

This is bad news for homeowners, and the U.S. homeownership rate in just under 67 percent. It is hardly surprising that there is a clamor for intervention. Last month, Calculated Risk offered thoughts on the demographics of homeownership in the U.S. He tracked homeownership levels in 1989, 1999, 2005, and Q2 2010, making the obvious but important point that middle-aged workers were bearing the brunt of the housing collapse.

This does shows that the most impacted cohorts are currently in the 30 to 60 age groups, with the 30 to 35 year old cohort the hardest hit group (in their mid to late 20s during the bubble). The next hardest hit groups are the 45 to 59 cohorts — probably because some people were moving up to more home than they could afford.

This helps explain why we’re likely to see intensifying political pressure for a government bailout of homeowners, most likely from both political parties.

I’m inclined to see the upside of the coming correction. Young families who would have had a hard time getting on the housing ladder at the peak of the bubble find themselves in a stronger position. But under-30s are not a powerful political constituency.

The truly bad news, as Neil Irwin of the Post points out, is that the housing news is part of a larger pattern:

Virtually every major economic indicator to come out in the past two months has been disappointing in one way or another. Retail sales. International trade.Weekly jobless claims. The monthly employment report. Housing starts.

Though Irwin had been reluctant to draw conclusions, he seems increasingly convinced that the recovery is sputtering out:

But as the third straight month of weaker data comes to a close, the brutal reality is that all the indicators are pointing in one direction. The data are all either coming in in line with diminished expectations, or surprising in a negative direction. It’s not an uneven recovery– it’s not much of a recovery at all.

Suffice it to say, we will all interpret this through our various ideological lenses. The left will argue that we needed more fiscal stimulus, many on the left and right will argue that we need a more aggressive monetary policy, and the right is split between those who believe that the downturn needs to do its work of liquidating malinvestment and those who see tax cuts as a cure-all.

I’ll end by pointing to a terrific post by Daniel Indiviglio on “the mortgage of the future.” Assuming we do pare back homeownership subsidies as aggressively as we should, the mortgage market will look very different. Indiviglio offers his own clever alternative to having banks rely solely on high down payments to protect their interests:

Enter the Declining Jackhammer Interest mortgage. A jackhammer starts at ground level, then digs deeper and deeper as it breaks through layers of rock until you hit the level you’re aiming for. That’s how this mortgage product’s interest rate would work. As new levels of principal are reached, the rate would decline.

I’m no expert, but this makes sense to me.