Washington D.C. (PRWEB) December 27, 2012
If Congress decides to adjust the house mortgage interest tax deduction, this is going to have a definite negative effect on the US housing market, say the experts at Apollo Financial Group.
Apollo Financial specializes in buying, selling and managing distressed mortgages. Using a proprietary formula, the company cherry picks past due mortgages from bank portfolios and then refinances, resells or otherwise adjusts the debt to more favorable terms to the homeowner.
Apollo founder Dean Anastos points to how new housing started dropping three percent in November as evidence of market nervousness.
“If people are concerned they won’t be able to deduct mortgage interest from their taxes, then of course they are going to be leery about buying a house. A home is the largest single investment and purchase most Americans ever make. The interest deduction means a huge savings on their income tax during the first 10 years or so of the mortgage,” he said. “To the average American family, that mortgage deduction is real money.”
The mortgage deduction is the oldest and certainly the largest housing related tax deduction in the tax code, said Ricky Brava, Apollo senior partner. Because this deduction costs the federal government around $100 billion, a year, according to some estimates, it is a definite point of contention when Congress discusses taxes, he said.
“But the question then becomes, how real is that $100 billion. If Congress eliminates the tax deduction, fewer people are going to buy a home. A lot of people rely on that tax deduction to give them enough money to make mortgage payments during the year,” he said. “I believe if the interest deduction is eliminated, that $100 billion in revenue is going to wind up being a whole lot, perhaps as much as half that, in real revenue coming in.”
Furthermore, the two men say if the mortgage interest deduction is removed, housing prices are going to drop.
“If people know they can’t take the interest off their taxes, they are going to offer and pay less for a home,” Mr. Anastos said. “If Congress eliminates the deduction, I really think all the gains we’ve made in the housing market are going to be reversed.”
Mr. Anastos said another threat to the housing market is a Congressional non renewals of the Mortgage Debt Relief Act. This act shields forgiven mortgage debt from taxable income. The Act is set to expire at the end of 2012. If it is not renewed, it will increase taxable income to individuals struggling with mortgage debt.
“That will further weaken the housing market. If someone is right on the edge of buying a house and they know they could owe taxes if the mortgage is modified, they may not buy,” he said. “Because banks could be on the hook for taxes based on the mortgage they could not recoup, banks will be even tighter on lending.”
Apollo Financial urged Congress to take steps to protect the US housing market and the gains made in recent months.