I don’t understand the Mortgage Interest Tax Deduction. Why help home owners and not renters. There shouldn’t be any tax deduction.
Housing economists hate the MID
By STEVE COOK, Real Estate Economy Watch
As the final days of the Presidential and Congressional elections draw near, most participants said they would be happy to get rid of the crown jewel of housing policy, the mortgage interest deduction.
More than half of respondents in the September 2012 Zillow® Home Price Expectations Survey, want to eliminate the mortgage interest tax deduction. Some 50 percent said it should be phased out gradually and 10 percent want it cut as soon as possible. Thirty percent said the deduction should have more eligibility restrictions placed on it, while 11 percent believe it should remain as-is.
“Although the mortgage interest deduction remains enormously popular with existing and aspiring homeowners, it costs the federal government about $90 billion a year,” said Terry Loebs, founder of Pulsenomics LLC, the company that conducted the survey for Zillow.
“Time will tell whether the unprecedented fiscal challenges facing the U.S., coupled with a housing market now on the mend, will embolden more policymakers to touch this lightning rod,” Loebs continued.
Meanwhile the MID remains under attack in national campaigns and the media. Efforts to get a plank in the National Republic Party platform failed in August and the effort generated critical media coverage included an August 30 column in Bloomberg View by Amity Shlaes is a senior fellow and director of the Four Percent Project at the George W. Bush Institute.
“To many today, however, the chief appeal of repeal is the reduction of price distortion. You are more likely to lose a house if you paid too much, because its true value was muddied by politics. You are more likely to keep a house whose price at the time of purchase was transparent and derived from the relative quality of the investment,” she wrote
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Proprietary OC Housing News home purchase analysis
18944 BOLD RULER Way Yorba Linda, CA 92886
$569,000 …….. Asking Price
$530,000 ………. Purchase Price
8/31/2009 ………. Purchase Date
$39,000 ………. Gross Gain (Loss)
($42,400) ………… Commissions and Costs at 8%
============================================
($3,400) ………. Net Gain (Loss)
============================================
7.4% ………. Gross Percent Change
-0.6% ………. Net Percent Change
2.3% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$569,000 …….. Asking Price
$113,800 ………… 20% Down Conventional
3.60% …………. Mortgage Interest Rate
30 ……………… Number of Years
$455,200 …….. Mortgage
$115,817 ………. Income Requirement
$2,070 ………… Monthly Mortgage Payment
$493 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$142 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$287 ………… Homeowners Association Fees
============================================
$2,992 ………. Monthly Cash Outlays
($325) ………. Tax Savings
($704) ………. Equity Hidden in Payment
$133 ………….. Lost Income to Down Payment
$91 ………….. Maintenance and Replacement Reserves
============================================
$2,187 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$7,190 ………… Furnishing and Move In at 1% + $1,500
$7,190 ………… Closing Costs at 1% + $1,500
$4,552 ………… Interest Points
$113,800 ………… Down Payment
============================================
$132,732 ………. Total Cash Costs
$33,500 ………. Emergency Cash Reserves
============================================
$166,232 ………. Total Savings Needed
The property above is available for sale on the MLS.
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Housing Can’t Save the Economy
Both existing and new home sales are on the rise, but no amount of improvement in the housing sector will bring relief to the overall economy, which continues to struggle, according to Capital Economics.
Existing home sales rose 10 percent from January to August, and new home sales rose 30 percent over the same period.
These numbers may continue to be strengthened by the Fed’s QE3 announcements, which instigated a decline in the mortgage-backed securities yield from 2.4 percent to 1.7 percent.
Economists at Capital Economics suggest this may bring the 30-year fixed rate mortgage rate even below its most recent record-low of 3.6 percent. The economists envision a possible decline to 3.3 percent.
While this may entice more home buyers, “the bottom line is that housing is unlikely to become a significant driver of GDP growth,” Capital Economics states.
The reason, Capital Economics points out, is that housing makes up too small a portion of GDP to have a major impact.
Residential investment made up 2.4 percent of GDP in the second quarter of this year. This is just half the long-term average and well below the 6.3 percent peak recorded at the end of 2005.
The cumulative effect of the past five consecutive quarters of residential investment growth has been a 0.2 percentage point rise in annualized GDP growth.
Thus, while the housing sector may celebrate small victories such as rising sales and an increase in housing starts, the overall economy continues to struggle with unemployment above 8 percent.