Notes on Real Estate

It isn’t the so-called bubble that will kill real estate, it’s the bubble heads.

The Presidential Advisory Panel on Tax Reform has released its recommendations on reforming and simplifying income tax laws, with the result that the real estate industry was expecting -- the panel is suggesting eliminating the mortgage interest rate deduction and giving a credit of 15 percent of mortgage interest paid to all homeowners. Currently, only homeowners who itemize take advantage of the mortgage interest rate deduction. In addition, a $1 million limit on mortgages eligible for the tax break would shrink to the average regional price of housing, ranging from $227,000 to $412,000.
– Agent News by Blanche Evans, 11/02/05

Neither a wise Liberal nor Conservative can support this. For those who enjoy the prospect of the government sinking its teeth into the rich to benefit the poor, this proposal won’t do that. It will affect most strongly our middle class.

Outgoing NAR President Al Mansell, speaking last week at the opening session of the National Association of Realtors convention, cautioned the panel that before they made a recommendation, that cutting the mortgage interest rate deduction will harm middle-income families most, and it could cause a housing bust of as much as 15 percent of home values.

He said, "… 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." This is obviously below the "rich" line, and is more a lower middle and upper low income area. In addition, the typical homeowner could lose $20,000 to $30,000 in housing equity.

"Housing is the engine that drives this economy and to even mention reducing the tax benefits of homeownership could endanger property values," warned Mansell. "The tax deductibility of interest paid on mortgages is both a powerful incentive for homeownership and one of the simplest provisions in the tax code. It should not be targeted for change," Mansell said. "NAR will continue to tell Congress that Realtors® strongly oppose any attempts to alter the current tax treatment of mortgage interest."

Mansell encouraged reformers to consider the past -- 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 instance, the resulting loss of value in the commercial real estate sector was 30 percent.

If we think for a moment that both sides of the aisle won’t consider a move that would endanger –nay, rob the nest egg of those who work hard their whole lives, make a significant contribution to our society and our economy, we must think again. Think "Social Security".

This is a pending action that will endanger the financial wellbeing of all of us, regardless of political affiliation.

That’s it for now. Except this:

1. If you have interests or questions, please e-mail me or give me a call.
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The opinions expressed in this newsletter are solely those of Tom Crone and others being quoted and do not necessarily reflect the opinions of Coldwell Banker Burnet or its affiliates.