There has been a recommendation by The President’s Commission on Fiscal Responsibility and Reform to reduce the mortgage interest deduction for home owners. The commission recommended turning the mortgage interest deduction into a tax credit, capping eligible mortgages at $500,000, and eliminating tax benefits for second homes and home equity loans. This deduction has been in place over 80 years and has been on of the main reasons people make the move from becoming renters to home owners. The tax deductibility of interest paid on mortgages is a powerful incentive for home ownership and is one of the simplest provisions in the federal tax code. In a recent survey commissioned by NAR and conducted online in October 2010 by Harris Interactive of nearly 3,000 homeowners and renters, nearly three-fourths of homeowners and two-thirds of renters said the mortgage interest deduction was extremely or very important to them. If this reform takes place it will have far reaching implications in our economy and in our housing sector.
So, how will the change in mortgage interest deduction affect housing?
- There are currently 75 million homes in America, approximately 51 million are owner occupied and have a mortgage. In 2008, nearly 38.5 million people claimed a deduction for mortgage interest on their taxes. Changing this IRS code will affect a huge number of people who file taxes each year and count on this deduction as part of their home budget.
- It is estimated that the home prices and values of homes will drop by close to 15%. This will impact home owners net worth and wealth drastically. Home values in 2009 were estimated at $19.3 trillion meaning nearly $2.9 trillion of wealth would be lost by homeowners – a drastic situation for many Americans.
- Housing is nearly 20% of GDP as each property sale generates over $60,000 in revenue and touches over 20 industries. As mentioned above, nearly 3/4 of home owners and 2/3 of renters claim the mortgage interest deduction as extremely or very important to them and their decision to buy a home. This will substantially reduce the number of sales every year will affect the overall economy.
- This change will affect an already rocky housing sector of our economy. Billions of dollars have been spent to support the housing sector so does it really make sense to reverse the trend now?
- Jobs will be lost as a result – real estate offices will close – the need for Realtors will diminish – builders will go out of business – title companies will reduce in size – the mortgage business will shrink – county government employees in record rooms will lose jobs – trades people will lose their jobs and the list can go on and on.
This decision will be bad for business, home owners, the economy and so much more – keep the mortgage interest deduction in place for the good of America. Get it? Got it? Good!
Now, go sell something!