Is Market Recovery Possible? The Elimination of the Mortgage Interest Deduction

Is Market Recovery Possible? The Elimination of the Mortgage Interest Deduction 

Lately, I've read a few articles about the possibility of reducing or eliminating the mortgage interest deduction.  What next? I'm thinking... How can the nation ever expect to recover?

The tax credit stimulus was a nice short-term success but since then, sales of existing homes have decreased and new home sales are at the lowest level they've been in about 50 years. On the upside, the tax credit stimulus helped move foreclosed property, improve bank balance sheets and increase buyer confidence about purchasing a home. Also, of great importance was that Congress passed legislation on June 30, 2010 to extend the closing deadline to September 30, 2010. If this extension hadn't occurred, approximately 180,000 homes that were under contract potentially wouldn't close.

Job growth is a vital component towards long-term market recovery. While job growth has improved, it has not come close to replacing the approximate 8 million job cuts in the past two years. News articles state that it's anticipated that 1 million jobs will be added for the balance of the year and another 1.5 - 2.2 million jobs in 2011.  Let's hope so!

Two positive things to note - interest rates are currently very favorable with a typical 30-year fixed rate of about 4.8%.  The second item is that the ability to acquire flood insurance dramatically improved when the federal government stepped in and became involved in the program.

Now, there's talk of reducing or eliminating the mortgage interest deduction which has been a part of the US tax code for almost a century.  As it is, we are already massively burdened with taxation and to potentially lose our mortgage interest deduction is beyond comprehension.  How will this further impact a person's decision to rent vs. buy?  The benefit of the mortgage interest deduction is a vital component of home ownership. If you're not concerned about this potential change in tax code because you paid cash for your house or have paid off your mortgage - think again!  It's anticipated that should the mortgage interest deduction be eliminated, home values would fall about 15%. 

In what way does eliminating the mortgage interest deduction help us in obtaining a sustainable long-term market recovery?

Be vigilant folks!

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Information deemed reliable but not guaranteed.