The housing market is suffering from a wicked hangover since the homebuyer tax credit expired on April 30. “With the end of that credit we’ve seen [housing] fall through the floor,”  says Dean Baker co-director of the Center for Economic and Policy Research.

But that doesn’t mean Congress should extend the credit again. “Basically we’re just giving people money for houses they would have bought anyhow,” Baker says. “It’s not going to sustain the market. We have a bubble that’s deflating.”

Housing starts fell in June to the lowest level in eight months. Builders are on pace to build 454,000 single-family homes in 2010.  That’s less than a quarter of the rate at the height of the housing bubble in 2005 (2.07 million), reports the Wall Street Journal. Homebuilder sentiment fell in July to its lowest level since April 2009, according to the National Association of Realtors Monday.  This latest data follows terrible existing and new home sales in May.

Meanwhile, the foreclosure problem remains.  One in seven homeowners with a mortgage were behind on payments in the first quarter.  So far, the government’s HAMP mortgage modification program has proven powerless to stop the trend. The number of modification trials continues to diminish each month and only 51,000 were made permanent in June. “In most of these cases people end up losing their home anyhow,”  Baker tells Aaron in this clip.

Instead of following the status quo Baker says it’s time to change course.  He favors passing the ‘Right to Rent’ Act, which Baker helped create and was sponsored by Rep Raul Grijalva of Arizona. The idea is to give homeowners who would otherwise by kicked out of their homes the right to rent for five years. “This will give people security in their home, it doesn’t cost the taxpayer anything, it prevents the blight of foreclosure,” Baker says. For those reasons, he says it has bipartisan support, but the likelihood of passage is still far from certain.

Baker has another more controversial fix for housing – keep Fannie and Freddie involved in the mortgage market.  Instead of being a quasi-private entity, which he argues got them into trouble, they need to get back to their original purpose of buying mortgages and act purely as a government agency.  “When they were losing market share, rather than saying ‘maybe this is a good thing we’re losing market share because this is irresponsible lending, we don’t want any part of this,’ they said ‘no, no, no we need to get in on this.’” Thanks to that strategy, it’s estimated the two companies will cost taxpayers as much as much as $1 trillion.