The Mortgage Interest Deduction Brouhaha

Wow, the president's deficit commission sure knows how to start a public debate with a bang! The proposal to limit the mortgage interest tax deduction received a level of attention commensurate with it's status as one of the costliest deductions in the U.S. tax code. At the heart of the emotionally charged reaction is the notion of home ownership as a cornerstone of the American economic dream. This is a matter of bedrock faith between the U.S. government and the American middle-class family that animates a large portion of U.S. GDP due to the fact that home ownership is so inextricably linked with consumer spending, which constitutes 65% of national gross domestic product. Various leadership organizations in the mortgage and real estate industries immediately predicted catastrophic consequences for the U.S. housing market (and broader economy) if such a proposal ever became law, and they are probably right about this. The foundation that supports consumer spending in all of its forms, from dinner and a movie to the purchase of a new car or home, is consumer confidence. Getting a solid grip on something as ephemeral as confidence in an economy like this is like trying to nail jello to a wall. Viewed from that context, taking a buzz saw to a housing-based tax deduction that most Americans view as a "sacred right" during a housing induced recession of tremendous magnitude ... is probably not the best way to right the ship.

In the Las Vegas real estate market for example, a lack of confidence in our short term economic prospects has lead many to shy away from making a housing purchase even though prices are very enticing. On the other hand, serious real estate investors with positive cash flow goals are being very aggressive about the purchase of Las Vegas foreclosures and seem undeterred by current economic circumstances. This makes clear the complicated relationship between confidence and perspective, which is a function of positional point of view. On balance however, we would have to say that any assault on the mortgage interest deduction would be a serious negative for residential real estate here locally in Las Vegas and more broadly on a national scale as well.