Rhode Island’s housing market is showing signs of life, after years of foreclosures, mortgage delinquencies and a deep recession almost buried the real estate industry.

Sales are up from a year ago, but one-third of the transactions still involve distressed properties. The median price was up to $220,00 in August, though still off 6 percent from a year ago. Real estate brokers report more people are showing up at open houses, but closing a sale is not easy.

One reason for the spark is a federal income tax break that gives first-time buyers an $8,000 credit. Already, about 4,100 Rhode Islanders bought houses under the program, according to the Internal Revenue Service.

But here’s the issue. The special tax credit will expire at the end of November. That has set off a sharp debate over whether or not it should be continued.

Realtors, homebuilders and mortgage bankers are lobbying to expand the credit. The National Association of Realtors is pushing to raise the credit to $15,000 and make it available for another year to all homebuyers. The National Association of Home Builders wants to keep the $8,000 credit until Nov. 30, 2010, and increase the eligibility.

Deficit hawks in Congress, however, say the price tag for the current tax credit is $15 billion. If the plans to increase the tax credit and expand the pool of buyers are enacted, the price rises to $50 billion to $100 billion, more than the country can afford. Other critics say most people who took the credit would have bought a home anyway, and the credit is another example of a temporary government fix that refuses to die. Still others, from other industries, wonder where their bailout is.

Congress — in the middle of struggles to reform health insurance, put together a climate control bill and stimulate the economy — doesn’t need another divisive issue.

Everyone needs to stop and take a breath.

This is not the time to be greedy or penny-wise and pound foolish.

With the real estate market still fragile, it’s time to calmly figure out what to do next to keep it growing without further bankrupting the country and its taxpayers.

Remember, the housing mess dragged Rhode Island and the United States into the recession and a clear recovery can’t occur until property values start to rise again and buyers and sellers return to the market.

Lawmakers who understood the importance of housing enacted the $8,000 tax credit as a compromise. It followed an earlier program that allowed a $7,500 credit that had to be repaid over 15 years and a much more generous $15,000 package that had been advanced in the Senate. Congress approved the $8,000 credit in February as part of the $787-billion plan to stimulate the economy.

In its current form, the $8,000 credit is income limited: single buyers must have adjusted gross income of no more than $75,000 to qualify. Married couples can report adjusted gross income of no more than $150,000.

The credit is the equivalent of 10 percent of the purchase price, capped at $8,000. And sales have to close by Nov. 30.

Real estate brokers in Rhode Island point to houses that have been sold because of the credit.

As Journal staff writer Christine Dunn reports in Sunday’s projoHomes section, buyers who use the credit have helped to stabilize home values by soaking up some of the huge inventory.

But the credit has its detractors.

The Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute, reported that the credit is simply a bonus paid by taxpayers because the buyer would have bought the house anyway. Another think tank, the Center for Economic and Policy Research, called the credit a “questionable redistributive policy” that moves people from renting to homeownership.

I have not supported parts of the stimulus plan that are bogged down in government bureaucracy and have been slow to put money into the hands of consumers.

There is a lot of testimony from economists, real estate brokers and first-time buyers that the tax credit is working. Ending it now will curb the momentum in the market.

Lawmakers and taxpayers should support extending the current $8,000 credit for one year.

The real estate market still needs a crutch until it’s healthy enough to stand on its own.

John Kostrzewa is assistant managing editor/Commerce & Consumer news. Reach him at (401) 277-7330, or at jkostrze@projo.com