If the House’s plan to cut the mortgage interest deduction to the first $500,000 of a loan becomes law, it will remove a benefit for new homeowners in many high-cost markets.
The share of recent purchase loans from $500,000 to $1 million is as high as 48% in San Francisco, 38% in Los Angeles, and 22% in the Washington, DC, area, Hale said.
“For some of those homebuyers, the lack of those deductions might mean it makes sense to buy a home or it doesn’t make sense to buy a home,” Hale said.
Home prices could fall because of lower demand. But more-expensive markets would be hit hardest. DC, Hawaii, California, New York, and Connecticut have the most people with mortgages over $500,000, according to The Washington Post.
People don’t really need to own their own homes. They are still going to live somewhere.
A reduction in home pricing in California would be a good thing, as far as I am concerned. Too many working people are priced out of the market here.
Of course, real estate professionals would have a different opinion. The higher the sales price, the higher the commission.
It will be interesting to see what transitional issues may arise, but in the long run, the effect of the home mortgage interest deduction is primarily to drive up the cost of housing. Eliminate it and housing costs will be lower at the front end than they otherwise would have been. That's good for homebuyers. It's bad for realtors and mortgage lenders whose income is based on percentages and who have a vested interest in inflated housing costs.
For new homebuyers, you will pay less up front and receive less when you sell. It nets out. The transitional issue is how much the change erodes the existing equity of current homeowners. My guess is that if the change is modest, it will be disguised by generally rising home prices, at least in the big urban markets, so that nominal equity does not decline. People will shrug that off; out of sight, out of mind. If there is a noticeable decline in nominal prices in resales, however, there will be squawking. That, again, is just a transitional issue. In the long run, we are better off without the artificial inflation of housing costs.
If the House’s plan to cut the mortgage interest deduction to the first $500,000 of a loan becomes law, it will remove a benefit for new homeowners in many high-cost markets.
Outstanding. That is a feature and not a bug of the bill. Housing prices are grossly over inflated in some places. Way past time that bubble was popped.
Fact check..... if you owe 1,000,000 on a house you don’t own it. The bank does
Your total mortgage payment(P I T I) should be no more than 28 percent of your gross monthly income.
Most would need an income OVER 100K for a 500k house.
Yep, and it will put downward pressure on home prices in that area as a result, which means folks who did a 6 week realtor course won’t be making tens of thousands of dollars commissions for work that is only worth a few grand...
Let's face it ... this deduction is intended solely to serve as a subsidy for the banking, home-building and real estate brokerage industries.
Everybody says those houses cost too much. Now they are griping that the prices could go down.
Make up your minds.
Remember when the feds took away the write-off of credit card interest?
That was the end of the world too.
new mortgages, but people who have their homes paid off wont be hurt. If you are in the last third of the mortgage(assuming 30 yrs) probably wont be hurt much.
Will the loss of a deduction really stop a lot of someones from buying a home ? I don’t see it.
IOW, these progressives are worried silly that homes might become more affordable for the hoi polloi they claim to be protecting.
The deduction for mortgage interest, like all deductions, is a form of subsidy, where higher taxes for all is absorbed more by those without such deductions than those with them.
As a subsidy and with the implied into of “promoting home ownership” it should have caps, as those needing the subsidy can roughly be equated with those who can’t as well afford a home than those who can. Home price is as good of a marker of that as anything else.
I would not use a fixed dollar amount. I would use the national median sale price of houses. Using it would grant the deduction but at no greater amount than would be provided on a median priced home. A simple calculation would determine what percentage was the purchase price of your home, in the year you bought it, to the national median home price in that year. If your home was at or less than the median, the interest would be fully deductible. If it wasn’t, the IRS would provide tables representing many interest rates and number of years in mortgages of various lengths, identifying how much interest in X year of a mortgage would have been made on a median priced home, and that would be the limit of the interest deduction. At least that would not discriminate based on what interest rate the consumer was able to get a mortgage at.
That is not my ideal, but a workable practical adjustment, in the absence of my ideal - a system with universal flat income taxes with zero deductions, exemptions, exclusions or credits - just a flat tax everyone pays.
P.S. The % of taxpayers that are now renters is nearing 40%; so fewer and fewer are benefiting from the mortgage interest deduction, not even all those paying mortgages take the interest deduction. Also, as the mortgage gets older the amount of interest being paid declines compared to principle, and if income is low enough, with a low mortgage on an “affordable home”, the standard deduction can be greater than the mortgage interest.