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Higher income people will not care or have other means to deduct the interest expense such as incorporating. So those prices may not be affected. Young middle class families will have lesser to spend and their demand will bring prices down in those markets.
Your assumption is that young middle class families are currently benefiting from the deduction or benefiting to any meaningful extent. After that assumption you would have to assume that the cost increase of ownership would have to be enough to inpact buying decisions, that also assumes such a tight amount of reseources that the choice to reduce the amount consumed by your house is necessary or warranted to help from reducing elsewhere.
This piece is a but older but does a good job breaking down some of the figures
Currently somewhere around d half of mortgage holders do not itemize therefore currently half of mortgage holders do not derive a direct benefit from the mortgage interest deduction. If you raise the standard deduction even while eliminating the personal exemption it is possible and even likely that even more mortgage holders will no longer itemize meaning even less people would have a direct benefit. The MID benefits disproportionately go to the higher end of the income scale where people can afford to pay higher interest/taxes and other items that can be used when itemizing. I think the overall impact would be minor but I can't blame the real estate industry for lobbying against it because a whole lot of people believe they get a benefit out of owning that they either do not at all or the benefit is much lower then what they think it is
I agree.
When I was preparing Income Tax filings for other people, I was shocked at how many would refuse to itemize. They viewed it as far more labor intensive for them to sign an itemized 1040, as compared to them signing a 1040EZ form. Many people simply do not care about saving money on taxes, they are more concerned with their perception of labor.
When I was preparing Income Tax filings for other people, I was shocked at how many would refuse to itemize. They viewed it as far more labor intensive for them to sign an itemized 1040, as compared to them signing a 1040EZ form. Many people simply do not care about saving money on taxes, they are more concerned with their perception of labor.
Why would you say you agree? You didn't agree with anything I said and people not itemizing isn't simply because they don't want to it's also largely due to the fact that taking the standard deduction is more beneficial
Very good paper. I agree with this from the Executive Summary section...
"the mortgage interest deduction (MID) primarily benefits those who would choose to own homes anyway while encouraging them to simply buy bigger and more expensive homes. Those who are on the margin between renting and owning tend not to itemize deductions, thus they cannot benefit from the MID. As a result, if the goal is to increase the homeownership rate, the MID is an ineffective tool. Furthermore, it creates a distortion in the choice between financing owner-occupied housing with debt or other assets, and in the choice between investing in residential real estate or other assets."
I agree that many homeowners do not itemize and are not aware of the benefits.
You shouldnt say you agree and then add in something I didn't say. No where did I say many homeowners aren't aware of the benefits, what I did say is that a lot of people over estimate the benefit
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Raising the standard deduction may likely cause fewer mortgage holders to itemize.
The overall impact would be minor.
This part I can agree with because it's actually inline with what I said
Your assumption is that young middle class families are currently benefiting from the deduction or benefiting to any meaningful extent. After that assumption you would have to assume that the cost increase of ownership would have to be enough to inpact buying decisions, that also assumes such a tight amount of reseources that the choice to reduce the amount consumed by your house is necessary or warranted to help from reducing elsewhere.
This piece is a but older but does a good job breaking down some of the figures
The problem with the report is that the income data in the report is static. It doesn't adjust using income quintiles or other methods that adjust for the changes in income over time.
You would find a lot of young couples in the rightmost two household income columns nowadays. It's not uncommon to get 60-100K coming out of college.
The main driver for housing prices over that span is reduced interest rates and easier down payment terms. Mortgage rates were in the teens in the late 80's and mid 90's. In some countries, they are now negative. I remember when a tenant of mine had to put down 30 percent down for a house because he was a self-employed business owner.
That's a great question and I think the only way to truly know is to suspend or eliminate the deductibility of mortgage interest. I think we're all pretty money-savvy here so I don't think our perspective can be generalized to the American population, rather we are a niche and so saying what we do or what we would do in various situations is probably not a good way to evaluate the population's behavior. My guess is that removing the deducibility could reduce home prices by 10-20%. There will be many sectors who will be sour about it, including realtors, brokers, bankers, appraisers, property tax collectors, consumer discretionary, and leisure. Homeowners will likely tighten their wallets a bit, and we'll have to find a new balance.
The problem with the report is that the income data in the report is static. It doesn't adjust using income quintiles or other methods that adjust for the changes in income over time.
Generally speaking as people move quintiles other backfill, it's not as though overtime the over income just becomes top heavy
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You would find a lot of young couples in the rightmost two household income columns nowadays. It's not uncommon to get 60-100K coming out of college.
Irrespective of age the MID tends to follow the deductions
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The main driver for housing prices over that span is reduced interest rates and easier down payment terms. Mortgage rates were in the teens in the late 80's and mid 90's. In some countries, they are now negative. I remember when a tenant of mine had to put down 30 percent down for a house because he was a self-employed business owner.
What were the US housing price increases during the 80-90s year by year?
There are only two factors that effect the local cost of homes.
1: A short supply of homes, in relation to the demand. (Few homes in relation to the demand for homes.) May be caused by a shortage of building lots, or land to subdivide.
2: Local cost to build, including everything from permits, cost of installing utilities, local cost of labor, local cost for building supplies, and local cost of building lots either single lots, or developing subdivision lots.
Example before the big real estate bust, the supply of homes to buy was very short in some locations with a surplus of buyers and that drove the price up, and up, and up. Then the bubble burst, and suddenly there were way more homes available than there were buyers, and the bottom fell out of the housing market, and prices plunged.
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