We all agree that reducing the national debt and annual deficit is important to the long-term stability and health of our nation’s economy.  But why, in a time when the housing market is so fragile, would anyone think that reducing one of the principal benefits of home ownership is a good idea?

Yesterday, the Deficit Reduction Commission issued its recommendations which included cuts to Social Security, Medicare, Defense spending, and the Mortgage Interest Deduction, among other programs.  The Mortgage Interest Deduction has been around for over 80 years and is one of the principal benefits of owning a home.  This provision allows homeowners to take the annual interest paid on their mortgage as an income tax deduction. Take away or significantly lower the deduction and the benefits of home ownership are reduced to choosing your own paint colors.   Values are not appreciating; no one is building equity, so why buy?

Coincidentally the Federal Reserve’s Beige Book was also released yesterday showing that the depressed housing market continues to be one of the biggest stumbling blocks to economic recovery.  So if I understand correctly, the Feds are saying that our economy won’t show significant improvement until the housing market recovers and at the same time the Deficit Commission is proposing that we make home ownership less appealing.   The logic eludes me.

I believe that the impact of this proposal will be a significant blow to the struggling housing market, whether or not it is ever enacted.   The public in general is still nervous that home values will continue to decline, so many would-be buyers are sitting on the sidelines waiting to buy.  The news reporting of this proposal, and even the remote possibility that the deduction will disappear gives them one more reason to stall, further delaying recovery.

Although I don’t always agree with their politics, the National Association of Realtors got this one right.  This is a stupid idea and I hope that you’ll join me in asking your Representative to defend the Mortgage Interest Deduction.

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