The Mortgage Bankers Association (MBA) has defended the tax deduction for mortgage interest against any and all challenges. Yesterday, in the National Mortgage News, it was reported that David Stevens, head of the MBA, indicated that the agency might not oppose a reduction or elimination of the deduction.
Mr. Stevens noted that if its elimination was part of a meaningful reform of the entire tax code, the agency might not oppose it. Sounds reasonable, but there would be consequences, at least for a while, and the brunt of those consequences would be felt in higher priced areas….as in most of California.
The interest deduction lowers the annual out-of-pocket cost of ownership, thus, borrowers can afford higher priced homes than without the deduction. The increased cost associated with losing the deduction might be felt less by long-time homeowners, but not for first time buyers or homeowners considering a move. It’s likely that a significant portion of them either would choose to spend less for a move, delay purchasing or choose not to purchase at all.
With declining demand for homes, prices would fall, new construction would slow (likely a lot) and housing services would suffer. While, by itself, losing the deduction might not lead to severe economic problems, the down trends noted are definitely recessionary and they would be felt here more than in lower cost housing markets. Eventually, equilibrium would return, but not without a fair amount of pain in the interim. Fortunately, such changes are not imminent.
Joe Adamson NMLS #234559
