The Mortgage Deduction

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Not too long ago I posted about how the government since the days of FDR has been artificially inducing demand for real estate. Over the years owning a how has gone from being a privilege to the point it is now an entitlement.

Now from the Inside Real Estate News out of Denver comes an article that promotes keeping another one of the long standing government enhancements to the real estate market: the mortgage deduction on taxes.

Anyone who carries a mortgage on their home may deduct the interest from their taxes and so could have a tax deduction up to $2500.00. One of the reasons that the justifications for keeping the mortgage deduction is that it will increase foreclosures. Now if a $2500 tax deduction is the only thing keeping people out of foreclosure, I would have to say that those people could not afford the home in the first place and should not count on a government enhancement to keep them in their homes.

In fact, as I mention in my previous post, more than 50% of the people buying homes could not buy them without some type of government enhancement and that number probably went substantially up in the last few years before the bubble burst.

I could go on forever about the social-economic impacts that the enhancements have created in our society. After all, when FDR started these programs only 2% of homeowners had a mortgage and today it hovers somewhere around the 65 to 75% range.

What you should not expect is any changes. The Reality lobby is one of the more powerful lobbying groups in many state legislatures and probably in DC too. They have too much to loose if the government stopped inducing demand for real estate.

Related articles

• Is it Time to End the Mortgage Tax Deduction? (thestreet.com)
• Is The Mortgage Interest Deduction Doomed? (chicagonow.com)
• How can they take away the mortgage interest deduction? (althouse.blogspot.com)
• Rethinking mortgage tax breaks (dontmesswithtaxes.typepad.com)
• Will deficit kill mortgage tax break? (lansner.ocregister.com)
• Mortgage interest tax deduction back in the cross-hairs as deficit soars (walletpop.com)

The Newest Real Estate Bubble and Induced Demand

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For anyone who watch the news yesterday you will know that the world has come to an end as housing sales plummeted 27% in the last reporting period. Doom and gloom seem to be everywhere you look when it comes to this issue.

However, what did people expect when the government induced demand for housing over the last 15 months? Of course the federal government has been inducing demand in housing since FDR was in office in the mid-1930's but the most recent inducing caused a housing bubble that suddenly burst when the inducing went away.

To give a little history lesson, before the times of FDR, less than 2% of the population would finance a home purchase (the irony being is people today have a higher percentage of income to housing prices than back then). At the time to qualify for a mortgage you need to put 50% percent down and pay it off in less than 7 years.

With the advent of the FDR programs we started to see the 30 year mortgages come along and the induce demand created by opening home buying to people who could not previously buy a home (I will not get into the social-economic problems that this created as it was the beginning of our decline into a debt slaved society).

Then came the FHA guaranteed mortgages for people who could not qualify for a mortgage otherwise. The latest numbers I have seen showed that 50% of the mortgages now being created were FHA or VA guaranteed loans. In other words, 50% of the people buying homes really could not afford them without the government helping them and thus inducing demand.

The tax incentives over the last 15 months induced even more demand over what would have been normal.

So what does this have to do with transit?

It was this induced demand that is one of the many reasons that development occurred as it has over the last 75 years. If the government had not induced demand, how different would our cities look today?