Study Finds No Impact of Mortgage Deduction as Home Sales Fall
July 24, 2017
A recent study found that the mortgage interest deduction, as is, is not effective in boosting home ownership. This comes as home sales are down, primarily due to low inventory. In other news, the House has not put a vote on the budget on their agenda yet, due to disagreements over how to move forward. Finally, the national oil rig count is down in what is expected to be a brief pause.
- Mortgage interest tax break has no effect on homeownership. The mortgage interest deduction is often credited with promoting homeownership. However, according to an academic study released today, letting taxpayers deduct mortgage interest encourages them to buy larger and more expensive homes but does not actually affect the decision to purchase a home One of the authors of the study suggests it is possible that a tax credit for first-time homebuyers or a deduction capped in line with median regional home prices would be more effective in encouraging homeownership. The current mortgage interest deduction, available to roughly 30% of all U.S. households, is expected to reduce government tax collections by $72.4 billion in the 2018 fiscal year. Although the mortgage interest deduction is unlikely to go away, the GOP is planning to double the standard deduction and repeal deductions for state and local taxes. Consequently, many households’ mortgage interest would likely be subsumed by the larger standard deduction amount. The share of households that would itemize deductions would drop from 30% to about 5%, leaving the deduction only for taxpayers with higher interest costs or making significant charitable contributions that tip them over the higher standard deduction threshold. [WSJ]
- Budget resolution missing from House agenda. When the schedule of activity was released on Monday, the GOP did not include a vote on the budget. The resolution that was approved the previous week by the Budget Committee has divided the GOP, with more conservative Republicans demanding greater cuts to mandatory spending and centrists calling for a more bipartisan approach to the budget. The resolution includes budget-reconciliation rules for tax reform that would create a fast-track process. GOP leaders on the Budget Committee, as well as House leadership, have expressed confidence in gathering the necessary votes for the resolution. However, its absence from the agenda indicates that the votes are not currently there. The agenda did include the Make American Secure Appropriations Act that combines four security appropriation bills. Republican leadership hopes to pass the budget resolution before the August recess. [The Hill]
Economic Indicators & News
- U.S oil drillers cut rigs for second week since January. As crude prices have declined in recent months despite an OPEC-led effort to cut production and end a multi-year glut, U.S. oil drillers cut rigs for a second week since January. Analysts stated that this should just be a brief pause and that drilling recovery is expected to continue until at least 2019. Since June 2016, drillers have added rigs in 54 of the past 60 weeks but the rate of those additions has slowed over the past few months with declining oil prices. U.S. crude futures were down around 2% to under $46 a barrel after the forecasted rise in OPEC production. The rig count is an early indicator of future output. [Reuters]
- Home sales slide as prices surge on tight inventory. Sales of previously owned U.S. homes fell in June and prices surged as strong demand overwhelmed the small supply of available homes. Existing homes sales fell 1.8% in June from last month’s seasonally adjusted annual rate of 5.52 million, as stated by the National Association of Realtors on Monday. For June, the median sales price hit a record high of $263,000 which is up 6.5% from a year earlier. A number of indicators suggest that demand is surging due to a strong economy and Millennials entering the housing market robustly for the first time. However, severe supply shortages are depressing sales, keeping a large segment of would-be buyers on the sidelines. There was a 4.3-month supply of homes on the market at the end of the month, which is down from last year’s 4.6-month supply. Data also shows that foreign buyers are putting a pressure on demand, with a jump in Canadians buying U.S. properties. Construction shows improvement and housing starts rose 8.3% in the month of June. [WSJ]