Why We Can't Compromise on the Mortgage Interest Deduction

Housing is the engine that drives this economy, and to even mention reducing the tax benefits of homeownership could endanger property values. Home prices, particularly in high cost areas, could decline 15 percent if the recommendation to convert the mortgage interest deduction to a tax credit gets implemented. That means about a $20,000 to $30,000 reduction in housing equity for a typical homeowner.
The Tax Reform Act of 1986 proved that when the tax benefits associated with real estate ownership are curtailed, the value of real estate declines. In this case, the resulting loss of value in the commercial real estate sector was 30 percent.
The current cap permitting deductions of the interest paid on mortgages of up to $1 million has not been modified or indexed since it was adopted in 1987. I am surprised that the panel would even consider reducing the cap. Basing the cap on complex regional loan limit calculations makes no sense. In California alone, more than a dozen Federal Housing Administration (FHA) limits are in effect in various parts of the state.
Eliminating the mortgage interest deduction would hurt middle-income families the most. According to IRS tax return data from 2003, 52 percent of the families who claim the mortgage interest deduction have household incomes between $60,000 and $200,000.
NAR is waiting to take an official position until the President's Advisory Panel on Federal Tax Reform makes an official recommendation. However, we're concerned that the commission is putting housing on the cutting block.

Thank you,
David Rigney
"David delivers the American dream"
Professional Realtor® in the Chicagoland Area
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Home Price Analysis for Chicago
By the Research Division of the National Association of REALTORS®
Executive Summary
With home prices rising strongly in most parts of the country, there has been widespread media coverage on the possibility of a housing market bust. A thorough analysis of the Chicago metro market, as detailed below, reveals that there is very little danger of this. In fact, the local housing market is in excellent shape with a potential for significant housing equity gains, particularly for homebuyers who plan to remain in their house for the long run.
Because prices have risen faster than income, the ratio of price-to-income is currently above the historical norm. This measure is frequently cited to imply that there is a housing market bubble. But this ratio is a misleading measure in assessing bubble prospects. A more relevant measure is the mortgage servicing cost relative to income. This ratio is only minimally higher than the local historical average. It implies no widespread financial overstretching to purchase a home in the region.
Chicago Price Activity Current Appreciation8% Modest 3-year Appreciation 29% Strong

Price Activity
• The current price of $263,600 is about 30% above the national average.
• The median home price rose 9.6% in 2004 and 29% in the past three years.
• Home price growth has been weak throughout the 1990s. So part of the recent increase is attributable to the "catch-up" effect.
• Chicago home prices are one of the most affordable among large metro markets.