Realtors Warn Of "Another Housing Crash" If Mortgage Tax Deductions Are Scrapped

Tyler Durden's picture

After failing miserably if their efforts to repeal and replace Obamacare, Republicans are set to shift their legislative agenda to focus on tax reform when they get back from their generous month-long August recess (taxpayers are such great employers).  Among other things, proposed changes to the personal tax code would include eliminating nearly all tax write-offs, including those for state and local taxes, and instead doubling the standard deduction.

Of course, potentially no industry would be more impacted by such a move as the housing market which has sparked a slight panic at the National Association of Realtors (NAR).  As Reuters points out this morning, roughly 30 million taxpayers taxpayers claim mortgage interest deductions totaling some $70 billion each year which provides a huge incentive to own a home.   

The National Association of Realtors issued an "August Recess Talking Points" circular imploring members to remind lawmakers that "Homeowners must be treated fairly in tax reform" to avoid "another housing crash."


The group cited a report it commissioned from PwC that estimated home values could quickly dive more than 10 percent if the tax plan becomes law.


Currently, about 30 million taxpayers claim the mortgage interest deduction, with about $70 billion in total claims, according to Robert Dietz, an economist with the National Association of Homebuilders.


Estimates suggest more than half of taxpayers would stop itemizing under the proposed plan, Dietz said, warning that this would create a large ripple effect through the economy. He said people in early years of a mortgage would suffer most, along with prospective home buyers.



Meanwhile, talking points distributed by NAR, intended to give realtors around the country ammunition against their elected officials while they're 'vacationing' in their districts, warns that tampering with the mortgage deduction could cause "home values everywhere to plunge" resulting in many homeowners once again going "under water" on their primary asset.

Proposals limiting tax incentives for homeownership would cause home values everywhere to plunge. Estimates provided by PwC show that values could fall in the short run by more than 10 percent if a Blueprint-like tax reform plan were enacted. The drop could be even larger in high-cost areas.   It may take years for home values to rebound from such a significant decrease.


With a reduction in values of this size, homeowners with relatively small amounts of equity would again see their mortgages go under water, finding they owe more than what their home is worth. For many, this will lead to defaults, foreclosures, or short sales, creating havoc for families, neighborhoods and communities.


-  The home is the most valuable asset for most owners. Millions of families have built equity for years with the hope of using it to help pay for retirement or college for children. Many of these dreams would evaporate.

But it's not just the housing market that would be impacted as the CEO of the American Red Cross warned that removing charitable deductions would be "devastating" for non-profit organizations that currently collect some $13 billion worth of tax-deductible donations annually.

Charitable organizations are not arguing against increasing the standard deduction. But they are asking members of Congress to consider creating a “universal deduction,” so taxpayers taking the standard deduction can get additional credit for donations without itemizing.


Taxpayers claim an estimated $13 billion each year in charitable deductions. Charities fear giving would plummet if the standard deduction were doubled without creating a universal deduction.


Gail McGovern, president and CEO of the American Red Cross, said reducing charitable deductions would be “devastating.”

But it's probably no 'yuge' deal...the U.S. housing stock is only worth about $30 trillion so we're sure the homebuilders and lenders can absorb a small $3 trillion valuation loss, right?

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Joebloinvestor's picture

I thought the cap was $1 million anyway.

MasterControl's picture

"Tax Deductions" aka "Theft deductions"

jughead's picture

OK, let's say my home was mortgaged.  How would a lower value impact me?  It wouldn't.  But that's because my home is my home, not some fucking roulette wheel I am addicted to.  

Midas's picture

It would be terrible for the economy if the most expensive cost in people's lives were to be reduced.  I think I am getting the hang of this keynesian economics!

Dsyno's picture

And lower home value = lower property taxes.

Deplorable's picture

They will just raise the tax rate to make up the difference

booboo's picture

hard to do when the millage rate is capped at a certain percent per so many years around these parts and why municipality's play their part in the bubble game. Right before the last shit show the politicians were yapping about trying to limit growth and now since they went through living hell with crashing values you don't hear a fucking peep out of their mouths about limiting shit anymore.

moimeme's picture

Americans need to wake up and realize their country is under a very DARK cloud.

mtl4's picture

Millage rates are set by laws which are made by politicians which can easily be rewritten to suit their own purposes (ie not a big deal to raise rates significantly during a crisis).  The housing market will crash again for sure and likely not bounce back for a while as the rise in rates and continued balance sheet increases (ie taxes) will all but assure it.  Ancient Rome sufferened from this while Illinois is doing a damn fine job providing us a more modern example.

Bigly's picture

Put down the pipe! They will just increase the mil rate!

lucyvp's picture

in my state ILLinois your property tax is 

(Total levy) * (your home value) / (total of all home values).

If both numerator and denomitor go down by the same perctange your taxes don't change

jughead's picture

theoretically.   They seem to be much faster at reassessing the value of your home for tax purposes when the value is rising than when it is falling.  


beachdude's picture

One reason this won't happen.

stitch-rock's picture

Don't pay property taxes for 5 years and see if that "home" is still yours...

booboo's picture

Can't do that anymore either. My Dad used to talk about the "Hobo Jungle" during the depression where they would hang out by the woods next to the Rock Island Line rail yards and hop freights, swap stories, share food, and of course, drink. no one bothered them.

Now you need a license to fucking breath.

orelius's picture

Not if you like electricity or flushing toilet...

curly's picture

WTF you talking about?

Composting toilets soon to be mandatory.  plop plop fizz fizz

and FU.  you get electricity when the wind blows and/or the sun shines.  remember those old windmills from the depression days?  get used to it.  Except they were used to pump water from underground, and it will be illegal soon to damage aquifers.  couple sticks of dynomite! down the well hole may be the new poor man's fracking for water.  you can't drive no internal combustion engine vehicles no more, homey.

and you will shut up and like it.  until your progressive masters say so.

maybe you can beg from outside the DC (NW only), Ft Meade, Manhattan, Google, FB, Gates, Bezos, Page, Schmidt castles though, for a few scraps



truthseeker47's picture

In the property tax system, you never really own property, you just rent it from the government.  Property taxes are the rent.  If you don't pay the rent for a year or 2, the gov kicks you out and finds a new tenant who will pay the "rent".

ToSoft4Truth's picture

A lot of areas offer Homestead Exemption.  That means property taxes are lower on owner occupied.  Rental property are taxed at a higher rate.


Do you think the landlord eats the property tax or passes it on to to the renter? 

FrankieGoesToHollywood's picture

True.  But if you choose the "squatters" way, you can move into an unoccupied McMansion, stay there while the courts protect your right to squat, and then file for ownership.  After you fail to pay property tax, move out and squat somewhere else.

Bunga Bunga's picture

Right, no one owns his home. The government does.

jughead's picture

True dat.  Hell, don't pay your income taxes and you'll experience the same result. 

beeeeeep's picture

How would lower home prices affect you?  Were you alive in 2007???  Seriously?  Were you alive and awake?  Let me summarize what every intelligent person knows.

Reduced home prices will make it so some people's homes will cost less than the mortgage they have.  At that point they will just stop paying their mortgage because their loan is worth more than the price of their home.  Home loan equities will collapse.which will cause banks to close and mutual funds to drop.  This all happened when home prices dropped in 2007.

No, it won't affect your mortgage rates directly and you will gain from lower property taxes, until they raise your rates to get to the same level as before, but many people like you also wound up losing their jobs at which point it did matter.

Just remember, your home is NEVER your home as long as you owe one dime to the bank.

jughead's picture

Yes I was alive and awake...and unaffected.  I'm sorry if you used all of your equity to go deeper into debt for your pool or whatever, then went underwater and like any other low-life scum decided to walk away from your mortgage because to you your home was a fucking ATM, not a home.  

Morons like you are part of what caused 2007/2008 to happen in the first place.  

smallbedbug's picture

Remove the $250k exemption for single and $500k for couples. Or extend it to 10 years instead of 2 years.

Juggernaut x2's picture

When the Fed can just print trillions and give it to La Kosher Nostra Bankers why do we have to pay taxes at all?

Cash Is King's picture

How nice would life be if it were all as neat and clean as 7? To bad it's turning into a nightmare!

gigadeath's picture

Larry Mizel and MDC holdings.... Slave for your huts goyim, you will work the fields and we will sit like effendi and eat.

Cardinal Fang's picture

This is it. The mortgage tax deduction will go away to drive the real estate market towards renting and benefit companies like Blackstone.

Mena Arkansas's picture

A 5% tax on all income, capital gains and corporate gross revenues to replace ALL existing taxes.

No deductions. No withholding. Every taxpayer cuts one check on Dec 31.

Once .gov pisses away their 5% vig they are prohibited from borrowing. Period.

Stormtrooper's picture

Unfortunately,  actual taxpayers are a small part of the American population so 5% wouldn't even keep the steaks cooking in the Congressional cafeteria.

TimeIsTheFire's picture

Under the proposed flat tax *everyone* would be a tax payer. Kid earns five bucks for cutting someone's lawn, he pays a quarter in tax. You find two dimes on the road, you pay a cent tax. (yeah i can see the flaw in that you'd have to declare it...)

truthseeker47's picture

Mena, you are proposing a "flat tax".  Russia actually has that: 15% on your income, whatever it is, for everybody.  The average working stiff gets it deducted from his paycheck and does not have to file a tax return.  Personally, I hate our ultra-complicated tax system and doing the annual tax return.

LeftandRightareWrong's picture

What % have any taxable income? 5% of nothing or next to nothing is still nothing.

ebworthen's picture

The mortgage tax deduction was crap to begin with; just encourages more debt and doesn't really save you much.

I'd say end the income tax since money is free ( - but let's start with a 10% flat tax and a one-page form.

WTFUD's picture

. . . bbbbbbbbbbbbbbbbbbbbbbbbbbbut that would lay-off ten's of thousands of gubby shirkers.

astitchintime's picture

Totally agree with your comment!

Want to add that I recently had to save my credit-score from my ex-husband who insisted I couldn't HAVE the house when we divorced.  Long story short ... he didn't make the mortgage payments for over a year AND didn't maintain the property so I am paying property taxes on something the county values at $145k that realistically is maybe $25k.

Fucker of an EX and good gracious, what a SCAM the freaking county has on their tax accessments.

EDIT:  to put it all in perspective, I left the property in 1999 and gave him 5 years to buy me out.  Never heard a word from him except the usual whining about "I can't refinance" blah, blah, blah.  So, after learning of him not making the mortgage payments, I bought him out.


over and out, except to warn any other empath-types who want to think their good deeds will turn out well ....


Secret Weapon's picture

Level the playing field.  Give the same tax break to renters. 

alpha-protagonist's picture

I don't know who down-voted you, but it's probably a slumlord.

TuPhat's picture

I didn't down vote but why go in the wrong direction.  No one really gets the tax breaks except Warren Buffett.  Just expect everyone to pay some tax.  That would be better.

truthseeker47's picture

Theoretically at least, renters do get tax benefits. Taxes go up - rents go up.  Taxes low - rents low.

alpha-protagonist's picture

The only time I've seen rents go down is when supply is up...and supply ain't up, and renters have to ante up when property values go up. So government creates a housing bubble and renters pay the price with no tax break save for $60? renters credit. It's not as bad if a renter is dealing with a mom & pop rental, but with Wall St. getting in on the action, it's all about ROI.

curly's picture

Oh shut up.

You don't want to assume any risk but want the benefits, then FU.  Pay for your own insurance, own maintenance, property taxes, market risk, etc. in contracts where you can't just walk away with 1 month's notice or less.

Fix your own damn toilet when you plug it up, your own furnace or A/C when you never look at the frikking thermostat or vacuum the floors.

Go live in public housing concrete bunkers and like it, comrade.

Talk to some Russian (or any former Soviet immigrants to the West).


astitchintime's picture

Well, where I am renting I have to give a 60 day notice IN WRITING and I have been here 11 (yes that is ELEVEN YEARS)

It's an apartment complex, not a stand-alone home or whatever they are called.

And I have to comment on the whole renting experience:  So, why do they NEVER offer free carpet cleaning (or in my case FULL-ON replacement of the carpet) for long term lessees?


Because they want (expect) you to leave.

Which, I believe is the exact opposite of what they want (but what do I know ;))


dchang0's picture

Many landlords pass all the costs on to their renters. Otherwise, they would be losing money on the rents (possible in certain markets such as rent controlled areas, etc.) Few people can afford to be money-losing landlords for very long--sooner or later they have to turn a profit, which by definition means all costs are passed on to the renter.

So the renters ARE paying for the insurance, maintenance, property taxes, etc.