NAR Says Changes to Mortgage Interest Deduction Would Crush U.S. Housing Market, Home Values Could Drop Another 15%

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In response to recommendations in the Deficit Reduction Commission report released this week, the National Association of Realtors (NAR) said it strongly opposes any changes that would modify or reduce the mortgage interest deduction.

At NAR's recent national conference in New Orleans, NAR's chief Economist Lawrence Yun said, "The reduction of mortgage interest could cause housing prices to drop as much as 15% from today's depressed prices."

U.S home builders also agree with NAR's stance against any modifications or reductions to mortgage interest deductions.

Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Michigan said, "While we commend the hard work of the President's deficit commission to improve the nation's fiscal situation, this is simply the wrong approach to the problem. It would put a huge tax increase on millions of middle-class home owners by eliminating or devaluing the mortgage interest deduction. The consequences would be devastating for housing and the economy. This would further depress home prices, putting countless more home owners underwater and triggering a new wave of foreclosures.

Eliminating or scaling back this vital housing deduction will shrink the local tax base of many communities, causing already cash-strapped state and local governments to further cut jobs and essential services. Given the extreme fragility of the housing market, with 21 percent of construction workers currently idled, tampering with the mortgage interest deduction is just not sound public policy."

"Few issues are more important to homeownership than the mortgage interest deduction (MID)," said California Association of Realtors (C.A.R.) President Beth L. Peerce.  "As the housing market continues to recover from the worst financial crisis in recent history, any change that reduces the ability of the market to heal is misguided and must be rejected," said Peerce.

According to a recent survey commissioned by the NAR, nearly 75 percent of homeowners and more than half of renters surveyed said the MID was "extremely" or "very important" to them.  The proposal from the Deficit Reduction Commission will negatively impact the housing market, further erode opportunities for homeownership across the country, and will contribute to further price declines and diminished equity for homeowners nationwide by as much as 15 percent.

NAR plans to vigilantly oppose any plan that modifies or excludes the deductibility of mortgage interest and make certain that the real estate industry's opposition to this proposal is heard and its far-reaching implications understood.
 
Mortgage Interest Deduction Background

• The MID has been part of the federal tax code since it was first enacted in 1913.

• People with both low and middle incomes use the MID. According the most recent IRS tax return data available, 63 percent of the families who claim the MID earn between $50,000 and $200,000 per year.

• While in any particular year only about one-third of taxpayers itemize, of the taxpayers who itemize deductions, more than 81 percent take the MID.

• Current law permits deductions of the interest paid on mortgage debt of up to $1 million on a primary residence and one additional residence. In addition, the interest paid on home equity loans of up to $100,000 may be deducted.