Is the sky really falling...again?

Let me begin by stating that I’m all for home ownership and being a Realtor®, I’m all for people buying homes – that’s how I make my living, listing and selling homes. I’m also a home owner.

Having said that; I read with interest the article in the November/December issue of REALTOR®, the bi-monthly magazine published by the National Association of Realtors (NAR), that had the front cover headline “Defending Home Ownership.” Inside the headline was “Countering the Critics.” While there were some thoughts expressed about the value to the community and the country of people owning their own homes, rather then renting; those thoughts were not fleshed out in the article.

Instead the NAR article was really just an overly simplistic explanation of the issue and some fear tactics aimed at heading off the political movement that is afoot to look at ending the mortgage interest tax credit – a sacred cow for the real estate and mortgage industries. Perhaps NAR hired some of the negative ads campaign writers from the recently completed elections to write this warning that the sky is falling.

There were of course some “facts” presented, such as the percentage of taxes that home owners pay each year (pegged at 80-90%) and an estimate by Lawrence Yun, the NAR Economist, of the potential negative impact on home values (pegged at 15% in the article), if the tax credit is removed and savvy buyers start factoring the value of homes, based upon lost tax advantages. Interestingly no facts were presented in the article about what percentage of home owners own their homes outright and thus get no benefit from this tax break.

According to Wikipedia, 67.8% of all occupied housing units are occupied by the unit's owner – the homeowner. A quick scan of Google returned the “fact” that 40% of all homeowners have no mortgage on their home, so they get no benefit from the mortgage interest deduction tax break. Do the math and that means that 59% of all people get no mortgage tax break. Put another way, as opponents of this tax credit are want to do, a minority (41%) of Americans are being given a tax subsidy by the rest of us taxpayers.

I should add in the interest of full disclosure that I am in that group with no mortgage and, thus, I get no benefit from the mortgage tax credit. I also recall the alarms that were sounded when the government stopped allowing the deduction of interest charged on credit cards. The sky was falling back then, too, and the end of credit as we knew it was direly predicted. Somehow we all survived and we’ll survive this tax policy shift if forced to do so.

What’s really under attack here? It’s not really the concept of home ownership. How many people make the decision to buy a house solely on getting that tax break? Admittedly, quite a few at the bottom end of the price ladder are heavily influenced by tax considerations. You just have look at the positive influence of the first time buyer tax credit and the negative impact on sales when it ended. Remember, too, that first-time buyers have made up between 40-50% of the overall homebuyer pool for well over a year.

So, tax policies do make a difference for first- time buyers. I can accept that; and, maybe the argument should be that we only need some form of low-end, entry-level buyer tax credit policy to get people started in the real estate market. There may also be a logical argument that the mortgage deduction incentive contributed to the housing bubble and subsequent bust by obscuring the true cost of housing and encouraging people to spend more than they really could afford. That was the good old pitch, “Hey I know the price is a stretch, but you’ll get it back in tax write-offs.”

But, does it follow that home ownership itself is under attack because the politicians are looking for more ways to pick our pockets again? Not really. The tax break is correctly identified in the article as an incentive. It was devised by the government in 1913 (along with the income tax, by the way) to provide incentive to people to own their own homes. For a good read on the topic click here. So let’s be clear. It is not a right. It is an incentive. Just like entitlement programs aren’t rights for the people who make use of them, neither is this tax break. Too many people have become confused about entitlements and incentives being “their right.” There’s probably a whole post that could be written just on that topic alone.

The NAR article had a call to action for Realtors to get out there and start pushing the advantages of home ownership. I think we all have always done that, just not primarily in tax code terms. Home ownership is a wonderful privilege in this country. I’m pretty sure that the founding fathers didn’t include any right to a tax break for that privilege. We should be espousing homeownership for reasons of security, comfort, and peace of mind – all of the things in the NAR video - not because of tax breaks. Hopefully, soon, we’ll be able to add that it’s a good investment back on the list. The sky is not falling. That’s my two cents worth.