The mortgage deduction has been sacrosanct in promoting home ownership since the Presidency of Herbert Hoover. That may be changing as Housing and Urban Development Secretary Shaun Donovan, pictured on the right, floated the trial balloon of eliminating or modifying the home interest deduction.
Eliminating or modifying the home interest deduction.
That should send a chill down the spine of every real estate agent and broker in the country. The industry went insane over the first time homebuyers credit yet barely recognizes that one of the key drivers of home ownership by the government is being threatened.
Discussing the housing crisis with reporters at a session sponsored by Third Way, a center-left think tank, Donovan offered some thoughts about whether housing policy had been too skewed toward promoting home ownership, given the number of foreclosures. A more balanced approach, he said, would also focus on the needs of renters and new ways to help them.
Asked whether the government should consider modifying the mortgage interest deduction, he made two points. He said that home ownership is a good thing but that officials may need to rebalance the incentives for owning compared to renting. He also said the president’s deficit reduction commission will be “looking broadly at a range of options.” This deduction, he added, is “a significant enough expenditure” that it will surely be looked at. via WSJ
Now this is not the policy of the Obama administration. Yet.
But it does follow a trend that the administration uses.
- First, a study magically appears recommending said action from administration friendly economist. Oh, wait, we saw that last week. See Economists Call For Reduction in Mortgage Interest Tax Deduction.
- Next a senior administration official floats a trial balloon on the proposed enactment of a new policy. That is this post.
- The next step will be to find a crisis that this will fix. I am not sure if will be balancing the budget or saving us from ourselves getting foreclosed upon.
Real estate agents and brokers, it would behoove you to follow this issue closely. The pot of gold the government can try to recoup will be nearly 150 billion dollars in 2015.
Think about that, 150 billion dollars out of the real estate industry, plus lower housing values, plus lower commissions and income for those in the industry.
The new home buyers tax credit was a drop in the bucket compared to the damage we will see in the industry if this ever happens.
The real damage will be the change in the philosophy of the country that home ownership will not be considered something that needs to be promoted.
Eliminating the home mortgage deduction would destroy the housing market. Many homeowners purchase homes to assist with their tax planning. The idea of taking this deduction away might be one of the worst things the government has proposed in a long time.
Definitely not a wise move. It's like trying to put out a fire by burning everything else in the area. Taking crucial benefits away from the homeowner will send the market to hell – I don't understand the logic behind this, what are they trying to accomplish?
Although I don't think a bill eliminating the tax deduction will ever pass, one that decreases the deduction can. While, I think a decreased deduction may not stop first time homebuyers fom entering the mid-to-low priced market, it will do serious damage to the higher end markets. Also, current homeowners will not have the big tax return to sink into the marketplace for repairs, tv's etc!!!
"The real damage will be the change in the philosophy of the country that home ownership will not be considered something that needs to be promoted."
Aren't the benefits of home ownership self-evident?
How much would home ownership decline if not subsidized by renters and paid-in-full homeowners?
And, if the government ever feels compelled to completely pay for it's increased spending with increased taxation, so much money will be sucked out of the system that the damage to housing prices from eliminating the home interest deduction will seem like a drop in the bucket.
But don't worry. Mortgage owners vote, and this can will be kicked down the road.
As a low-income renter with NO HOPE of buying a home, and paying half my poverty-level income to rent a room in a house with six others, I say it's about time a trial balloon like this was floated.
And Frank the skeptic taps into my angst, although not in the way he intended: note this sentence: "How much would home ownership decline if not subsidized by renters and paid-in-full homeowners?"
Indeed, why exactly should the income of involuntary renters be redistributed UPWARD to homeowners? (Oh, and if you think property taxes are burdensome to homeowners, try owning or living in rental property, in most states the taxes are higher on rentals than on owner-occupied.)
FWIW I would retain the mortgage deduction for 50 years on new construction.
This is insane. The mortgage interest deduction is one of the few write offs in our current tax system. Eliminate this write off and home sales will plunge.
Is it rational for people to stop buying homes if the mortgage deduction goes away? What are people going to do, stop buying homes and continue leaving the equity-building to their landlords?
People have to live SOMEWHERE and thus there will always be demand for homes and thus there will always be capitalists seeking to profit by meeting this demand for homes.
Retaining a 50-year mortgage deduction on new construction (as I suggested above) keeps new homes in the pipeline, thereby meeting the ongoing demand for housing.
Suggesting that people will prefer to rent than to buy an existing home without a mortgage deduction seems a little silly.
1. Cash for Clunkers and closing down thousands of non-union independent dealers!
2. First time home buyers incentives which created two market crashes in a non union controlled within a year!
3. Credit Card regulations that increased the interest paid by people with good credit and eliminated the chance of getting a credit card for those without perfect credit!
4. Now a trial balloon for Mortgage interest reductions!
5. Cant wait until next week?