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Is there an artificial inflation of house price because of the deduction allowance for mortgage interest?
I have read that construction cost is down and is one reason why huge McMansions are being built. If the deduction goes away would it bring real estate prices down? isn't that better in final analysis that demand will pick up, and more medium size houses in mid range price, which are now in short supply, will be built?
I don't think the deductible has anything to do with house sales.
Not really sure the cost of construction is down either. More likely the number of new constructions has decreased. My guess would be a combination of a desire for smaller houses on the part of millenials and boomers, and poor economy so people can't afford to buy houses.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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While the deduction is nice, especially in the first few years when the payment is almost all interest, it wouldn’t stop us from buying. There are too many other advantages to owning. The most important is that our fixed rate mortgage has remained the same all these years, while our income has almost doubled. In that same time rent in the area has tripled, doubling in just the last 6 years.
Is there an artificial inflation of house price because of the deduction allowance for mortgage interest?
I have read that construction cost is down and is one reason why huge McMansions are being built. If the deduction goes away would it bring real estate prices down? isn't that better in final analysis that demand will pick up, and more medium size houses in mid range price, which are now in short supply, will be built?
I think it would be better in the long run. But it's not the biggest factor that is keeping prices high. The worst factors have to do with lack out housing supply being built because of zoning and land use regulations.
Is there an artificial inflation of house price because of the deduction allowance for mortgage interest?
I have read that construction cost is down and is one reason why huge McMansions are being built. If the deduction goes away would it bring real estate prices down? isn't that better in final analysis that demand will pick up, and more medium size houses in mid range price, which are now in short supply, will be built?
The house prices aren't artificially inflated. The demand is there. People need to get their head out of the 03-07 bubble prices. It's been 10 years. Housing wasn't going to sit stagnant forever
Huge mc mansions are built because that's what people want. The costs are there regardless if you're building 1200 sq ft or 2500 sq ft. Construction companies build what sells. What sells is what is in demand. That's what they build. If all if the sudden 1000 sq ft round houses that look like doughnuts were in demand they would build that
The basic question is easily answered. Look at Toronto or Vancouver. Both are quite similar to larger American Cities. In fact I think Vancouver may well be the nicest city on the continent.
But check the prices there. They have no tax deduction for interest.
lvmensch, that's some convoluted thinking. Do you suppose juuuust a few other factors are at play with Vancouver's and Toronto's housing prices?
Mortgage interest deduction is a sizable chunk of anyone's affordability equation. There's no question that it plays a role in home values. Most people are bright enough to factor that in at least in vague terms when they make a huge life decision.
lvmensch, that's some convoluted thinking. Do you suppose juuuust a few other factors are at play with Vancouver's and Toronto's housing prices?
Mortgage interest deduction is a sizable chunk of anyone's affordability equation. There's no question that it plays a role in home values. Most people are bright enough to factor that in at least in vague terms when they make a huge life decision.
Very few. Used to have this discussion 35 years ago as we flew back and forth from suburban Toronto to Rochester NY.
And we have relatives in suburban Toronto and in rural Saskatchewan and in BC. Housing values seem similar to the states including the weird stuff like the Chinese buying up Vancouver.
But over those many years there is no indication that the interest deduction drives housing prices.
Want a buy go to rural Sask. Pick out a house in the used house lot and they drag it to your lot. Get a reasonable little place for $20k.
In Australia interest is only a deduction on investment properties, not principal places of residence. We have seen here a huge surge in real estate prices the last five years or so in Sydney and Melbourne, which are home to about half the population. People blame everything from Chinese investors, the tax treatment of investment properties but mostly they seem to blame baby boomers for supposedly having too many properties, not moving out of the city when we retire and basically living too long.
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