What will the Feds do in response to the continued housing slump?

By: Bob Sallee

Published: September 16, 2010

For the past few months, national news media have focused on what’s been going on in the housing market, and predicting what may happen in regarding federal tax breaks and subsidies for homeowners.  Opinions range from the elimination of mortgage interest deductions on your federal tax return to new programs helping homeowners refinance mortgages which remain larger than the depreciated value of their homes, to subsidized housing for the unemployed or under-employed, and to increased rent subsidies for low income families.

Are some of these measures in our future?  Or, are they just pre-election rhetoric?  What’s likely to change?  What’s likely to remain?  Should we be concerned?  Since two-thirds of Americans own their own homes, whatever happens can have a big impact on housing costs and accessibility.  Will policies regarding finances change the American dream of owning their own home?

Paul Wiseman, writing for USA Today, reports that Australia, Ireland, Spain and Britain have a higher home ownership rate than the U.S., although “these countries provide far less government support for homeownership,” according to Michael Lea of San Diego State University.  > source

Wiseman says the experts believe the “U.S. can no longer afford housing tax breaks.”  Citing research by the Tax Policy Center of the Brookings Institute, he reports that families with households under $40,000 do not benefit from the mortgage interest deduction, gaining a tax benefit averaging just $91 a year.  The average deduction jumps to $5,459 for those earning more than $250,000.

Although Wiseman says “The government… is unlikely to touch the politically sacrosanct deduction anytime soon,” he goes on to say “But analysts suggested that the government’s debt- $8.8 trillion and growing- meant that housing subsidies might one day face the knife.”

Wiseman hits head-on the question “Just how much should Uncle Sam do to help Americans buy their own homes?”  He believes the re-examination of federal mortgage guarantees and subsidies “could mean a shake-up for (the) mortgage market.” > source

Nin-Hai Tseng, a reporter to CNNMoney, echos the concern asking “Housing Quagmire:  Is It Time to Remove Relief?” > source

Tseng says “Not even record low (mortgage) rates have boosted home sales or enticed a debt-weary public….So why try to prop up prices any longer with federal programs?  Is it time to simply let prices freefall, clearing the way for a genuine correction of the real estate market?”

“…Evidence is mounting that government interference in the housing market might be doing the broader economy more harm than good, at least for the long-term.”

Citing a recommendation of Dean Baker, co-director of the Washington DC-based Center for Economic and Policy Research, Tseng writes “Let the market dictate where prices should fall.  As for the many homeowners who would likely face foreclosure, give them the option to stay in their homes by letting them rent their homes for up to five years.”

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