THE HOMEOWNERSHIP OBSESSION
August 4, 2008
As a society, we're overinvesting in real estate. Part of the problem is the conspicuous subsides that favor the upper middle class, says columnist Robert J. Samuelson.
- Homeowners can deduct interest on mortgages of up to $1 million on their taxes; they can deduct local property taxes, and profits (capital gains) from home sales are mostly shielded from taxes (In 2008, these tax breaks are worth about $145 billion).
- Next, government funnels cheap credit into housing through congressionally chartered Fannie Mae and Freddie Mac; perceived as being backed by the U.S. Treasury, Fannie and Freddie can borrow at preferential rates, and they now hold or guarantee $5.2 trillion of mortgages, two fifths of the total.
- Finally, the Federal Housing Administration (FHA) insures mortgages for low- and moderate-income families that typically require only a 3 percent down payment from buyers.
Congress's response to the present crisis is, not surprisingly, more of the same, says Samuelson. The legislation nearing final enactment last week adds new subsidies to the old:
- It creates more tax breaks; first-time home buyers could receive a $7,500 tax credit.
- It expands the lending authority of Fannie Mae and Freddie Mac; previously, the permanent ceiling on their mortgages was $417,000; now that would go as high as $625,500.
- And the FHA would be authorized to support, at much lower monthly payments, the refinancing of mortgages of an estimated 400,000 homeowners in danger of default.
The theory of the new legislation is that more subsidies will stabilize the housing market and stimulate a recovery. This may -- or may not -- work in the short run. But it poses long-run hazards, says Samuelson.
Source: Robert J. Samuelson, "The Homeownership Obsession," Newsweek, August 4, 2008.
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