Saturday, March 14, 2009

Mortgage interest deduction plan in the budget has major opposition

The LA Times is reporting that the opposition to the mortgage interest deduction is lining up. The National Association of Home Builders, National Association of REALTORS® and the Mortgage Bankers Association all have come out in the opposition. The bill hits California and New York the most. One sixth of the people targeted by the plan live in California. I don't think the plan would have an immediate impact on prices but over the long term it would affect the first and second move up tier of the market which as those prices fell would then affect the lower end of the market. That would take some time.

The immediate issue for buyers today, no matter their tax bracket, would be that the deduction is no longer sacred they can't plan long term that it will be as high as it is today and would have to factor that into their near term purchasing decisions. The law is written as a cap on all deductions so I think the property tax deduction would also be affected. As it is I think people overestimate the deduction affect of mortgage interest on their ability to buy as they calculate the deduction for the first year when the interest paid is highest but don't take into account amortization and the fact that interest paid reduces over the life of the loan.

From the article:

Fear that the Obama proposal could lead to future cuts to the deduction is a major concern of some opponents, said David Kissinger, director of government affairs for the South Bay Assn. of Realtors.
"If today it's households earning $250,000 who will pay more, does it mean tomorrow if they still need to balance the budget it will be those making $180,000, then $160,000? How often is the government going to go back to the well?" he said.

While I think the arguments by the NAR against the plan are overdone, the slippery slope argument does have some merit to it.

1 comment:

Noz said...

Ah...the real cost of living in the USA is finally catching up with people...and it's hitting from all sides.

I've always said...since I set foot in this country 25 some years ago, that it's not what it seems here. It's a facade at its best.

I know...this is a tangent to this topic but I think it's relevant because the increase in costs of living is coming and FAST. Because finally the fake wall protecting people here (and ironically sucking their money out of them) is finally falling down.

The analogy I use that illustrates this well is that Americans have, for the longest time, been driving behind a semi truck with little wind resistance while the rest of the world hasn't had that luxury and protection.

Now that truck has broken down and Americans driving straight into the real amount of wind resistance like the rest of the world.

Effective...I agree with you about the tax deduction on mortgage. I've always...always stated that it's the wrong reason to buy a house....and no better has this been highlighted than in this market. Does it makes sense for me to spend $40K in mortgage payments per year to get $10K back?? And that's only the first few years as you say since the reduction in interest is practically effective for the first few years.

This has been an excuse used by the NAR, NAHA, and MBA to dupe people into thinking somehow a home makes you money by making you save money.

Their house of cards is also coming down....it's built on a big scam.