Appraisal Articles 2019 Free Appraisal Articles for Appraisers and the Public
The current proposal to do away with the mortgage interest deduction on homes purchased in the future may negatively affect the market value of homes. Home buyers in the Las Vegas area are spending $ 300,000 or more to purchase a new home and most have only 10% to 20% down, so their mortgages are substantial. A buyer who is going to take on that new say $ 250,000 plus dollar mortgage has in the past expected an annual interest deduction of around $ 10,000.
For many home buyers a mortgage interest deduction has in the past been significant and it was relied upon to bring down their taxable income. Their deduction has been relatively large for most, even with relatively low interest rates near 4%, and it has helped bring down taxes in each and every year a buyer paid on his or her mortgage. Many people don’t realize that interest rates over the past few years have been extremely low, so the deduction while still large for most, would be much larger to new borrowers if interest rates again increase.
It’s my opinion that home buyers will be less motivated to take on a new mortgage if the mortgage interest deduction is abolished. Clearly, families will qualify for a smaller mortgage since the loss of the deduction will give them less money to spend on other things. A lowered demand for both new and existing housing will likely result from the loss of the mortgage interest deduction.
Appraisers will likely be faced with lowered market demand for homes which causes lower home prices but it will difficult for them to tell how much of it is attributable to the change in the tax law. If, however you consider the impact to new home builders, who will sell fewer homes, and the impact to existing homeowners who will lose a portion of their homes value (their equity), I believe that the negative affect and losses will be huge.
Just the thought of how much more a home will cost a buyer over time will have a negative impact. Many millennials who have not committed to homeownership will feel cheated and possibly they will decide to just continue to rent and stay away from homeownership.
Those who appreciated the deduction over the last several decades will be even more negatively affected. They will keep their current home and its deduction longer than they would have and a strong disincentive to reinvesting in another home will be created. When you are used to taking the tax deduction on mortgage interest it is hard to fathom why you should have to pay taxes on all of those dollars that are simply being sent to the bank.
I am just a Las Vegas real estate broker, a Realtor and a real estate appraiser in Nevada but it is not that difficult to imagine the many negative effects of doing away with the mortgage interest deduction. They will be real and I don’t believe that most people realize just how negative the impact from this proposed change will be.
For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/
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