Threat Of Elimination of Mortgage Interest Deduction Not A Concern For St Louis Housing Market

This morning the National Mortgage News published an article titled “Lenders Fear Congress May Neuter Mortgage Interest Deduction” in which they caution the mortgage interest deduction (MID),  referred to as “a pillar of U.S. housing policy” in the article, may be effectively rendered pointless if Congress makes the significant changes to it that they appear ready to consider.  The article blames the House Republican Blueprint (announced on June 24, 2016) which “calls for doubling the standard deduction that tax payers receive, which would mean that most people would have no need to take the mortgage interest deduction.”

First, for clarification, lets clarify what the blueprint says.  If you turn to page 19 of it (see below) you will see it states “The Tax Reform Blueprint will consolidate the basic standard deduction, the additional standard deduction, and the personal exemptions for families and individuals. The new larger standard deduction will be $24,000 for married individuals filing jointly, $18,000 for single individuals with a child in the household, and $12,000 for other individuals. These amounts will be adjusted annually for inflation.”  So, what is proposed is taking the current standard deduction of $12,600 for a married couple and the personal exemptions ($4,000 per person in 2015) and rolling those two things into one standard deduction of $24,000 for a married couple.  So, for people without kids, or perhaps only one, they will come out ahead, for people with several kids they will be losing some of their current deduction.  For sake of this article, lets look at a family of four.  Currently, that family would have a standard deduction of $12,600 plus $4,000 personal exemption for each of the 4 in the family, $16,000, so their total deduction between the two would be $26,600.  Under the new blueprint, they would get a flat $24,000 deduction.  In addition, the tax rates would be reduced.

House Republican Blueprint, nor even elimination of the Mortgage Interest Deduction, will hurt the St Louis Housing Market..

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The Mortgage Interest Deduction…Truth vs Fiction

mortgage interest deduction truth

The truth on the Mortgage Interest Deduction

Currently, lawmakers in Washington D.C., while looking for ways to “close loopholes” and cut spending, are looking hard at something once considered “untouchable”, the mortgage interest deduction (MID).  While there is probably little chance of totally eliminating the ability for homeowners to deduct the mortgage interest they paid on their homes, there is a possibility the deduction could be altered significantly or capped, and, perhaps, even phased out over time.

Like most current  events, there are stories out there with varying degrees of accuracy about the benefit of the mortgage interest deduction as well as who it benefits.  In response to the rhetoric out there, economists with the National Association of Home Builders have published a list of ten common claims about the MID and their findings as to the validity of those claims after researching data from the IRS, Census Bureau as well as other sources.  The complete results are shown below:

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Forecasters say home price increases to be at "pre-bubble" levels next year; no impact by change in MID

dennis-norman-realtorA panel of 105 professional economic forecasters from all around the country expect home prices to increase 3.1 percent in 2013, according to the December 2012 Zillow Home Price Expectations Survey.  Forecasters are more optimistic about home prices than they were just three months earlier when they predicted 2013 home prices would only increase by 2.4 percent.  If the experts are correct, then home prices in 2013 will be increasing at nearly the “pre-bubble” average of 3.6 percent per year (see chart below).

Something else I found very interesting in the report was that most (55 percent) of the forecasters felt there would be no impact on home prices if the Mortgage Interest Deduction (MID) was changed as is being discussed in negotiations by politicians trying to avoid the fiscal cliff (see chart below).  Many housing groups, including the National Association of REALTORS, have fought vehemently for the MID over the years saying any change to MID (which has been in existence since 1913) would negatively impact the housing market, however this group of forecasters doesn’t seem to feel that way.  For what it’s worth, I have often questioned whether changing, or even eliminating, MID would actually have a negative impact Continue reading “Forecasters say home price increases to be at "pre-bubble" levels next year; no impact by change in MID

Cap on Mortgage Interest Deduction Expected Soon

dennis-norman-st-louis-realtor-Charlie Cook, of the Cook Report, a well-known and respected political commentator, cautioned REALTORS at their annual national convention to be prepared for changes to the mortgage interest deduction.  According to an article in REALTOR magazine, Cook said he did not expect the mortgage interest deduction (MID) to specifically come under attack but that, as Congress looks at cuts to address the deficit, the MID “unlikely to escape unscathed.  Cook went on to say that he felt the change would most likely be in the form of a cap, whether it be a dollar amount or a percent allowed for itemized deductions, but one way or another, it was going to change.

Does the Mortgage Interest Deduction Help The Real Estate Market?

Dennis Norman St Louis RealtorLast week, The Washington Post published an article by Kenneth Harney which said “if you take mortgage interest tax deductions, the next 100 days could have significant financial implications for you, thanks to Congress’s new federal debt ceiling plan……the compromise legislation created an unusual mechanism — an evenly split, 12-member bipartisan supercommittee — that could call for major cutbacks on real estate write-offs by Thanksgiving.”

The question is, would doing away with the mortgage interest deduction put the final nail in the coffin for the housing industry? Read on to hear two opposing opinions on the topic. Continue reading “Does the Mortgage Interest Deduction Help The Real Estate Market?

Mortgage Bankers Cautions Against Cutting Back Mortgage Interest Deduction

Dennis Norman St Louis

Last week the co-chairs of the National Commission on Fiscal Responsibility and Reform (the group that is supposed to figure out how to rescue our country out of the financial quicksand it’s in) issued a draft proposal of a plan the committee says “will make America better off tomorrow than it is today”.

In addition to such enlightening statements such as “America cannot be great if we go broke” the report outlines a plan that makes five basic recommendations: Continue reading “Mortgage Bankers Cautions Against Cutting Back Mortgage Interest Deduction