SB, give Ogged a break. He's had a brush with mortality and is feeling old.
You just bought a house?
I just made a $60,000 down-payment on an elegant chart.
I just made a $60,000 down-payment on an elegant chart.
Not bad -- what are the monthly payments?
Seems like easily the biggest variables are not just outside your control but also hard to predict: future appreciation of the house's value and future rate of growth in rents. With the relevant values for my house plugged in, a one percent increase in the appreciation rate (from 3 percent to 4 percent, against a 2 percent annual rent increase) moves the curve from "buying is never better over 30 years" to "buying is better after 8 years." That's a lot of sensitivity to prevailing market rates.
Worst Post Ever
Sometimes winter makes me think of spring, and instead of snow, I imagine elegant interactive charts, and the nice smell of colorful flowers. Instead of the drip drip of icicles, there would be calculations of which is best for you based on your own budget and expectationst. Kids would play their happy games, and the fresh spring breeze would be like a big hug, by far the best I've seen.
If I'm planning to buy a place that cost $500,000 (which I can't afford and which would be a total dump around here), it's not worthwhile within a decade until I bump up the expected appreciation to 6% (with rent increase at 2%). It just seems, as the article notes, so weird that buying could be such a bad deal.
Dude, you live in the most grossly overinflated housing market in America.
Speaking of which, our property manager was making noises today at us about how interested the owner would be in selling to us. She's freaking about prices going down. I can't decide if the inconvenience of moving *again* in a few months (if we buy something else) bothers me more than the open kitchen in this place....
Maybe I should move to Pittsburgh, which I hear is prettier anyway.
Yeah, but that was at least funny.
B, that I'm not funny anymore is well-established. I'm not the one deluding myself.
It just seems, as the article notes, so weird that buying could be such a bad deal.
Yeah. Although in my case I was comparing the rent of the cheap place we were living in before we moved into the house, so I should check to see whether it's still as sensitive with rent roughly equivalent to the mortgage payment. Though where I live I don't even think there's that much of a quality long-term rental market.
I've heard that many are moving from Portland to Philadelphia.
Hm, yes. With rent = mortgage payment, buying is better after two years in my case.
With rent = mortgage payment
Um, this is verging close to math for my taste, but isn't part of the point that rents are lower than mortgages?
18: Yeah, sure. But in my case the rental was a dump, so I was wondering what the other limit was. Turns out a higher but still realistic rent, consistent with moving into a nicer apartment but still well short of the mortgage payment, makes the buy-decision win after three or four years.
Oh, by the way, "lets." Not "let's." Shame, Ogged.
#7 is right. Basically, all that chart boils down to is, "If prices go up a lot, you're better off buying."
It is fun watching the line move around, though.
They dismissively mention the mortgage interest tax deduction as if it is but a minor factor, but don't seem to factor it into their chart. Which (if I'm reading it right) is kind of a glaring omission--renting is only a better deal if the interest payments alone on a mortgage are greater than the whole price of a rental home (since you get to keep the equity value of the principal), and the deduction effectively lowers the interest payments by 30% or so, depending on your income tax bracket.
Apparently no, you cannot. 404 not found.
Holy crap, all of YouTube is down for me... anyone else?
And I'll second 24. That deduction is a big deal. Our initial loan was about 158k(bought a house in a Salt Lake suburb in summer of 2001), and the first few years we've been deducting over 9k a year.
No, I assume they're taking the deduction into account. If you look at Advanced Settings - General, it has you enter in your income tax rate.
A world without the distorting effects of the mortgage interest deduction, and generations of culture and expectations built around it would make renting superior many more places than it is. But I'm a real, that is small "c" conservative and would never advocate such a drastic change unless it was undeniably necessary and urgent.
I'd advocate a repeal of the mortgage interest deduction today. It won't ever be "undeniably necessary and urgent", and the world would be much better off without it.
I'm with Brock -- it's regressive and an incentive for sprawl; really a bad thing all around.
I don't disagree, that's not my point.
30- Isn't that just about the standard deduction, though? Granted, if you have a base mortgage deduction == standard deduction, then you can deduct other stuff on top like charity and state and property taxes (unless you hit AMT) but the mortgage deduction isn't as significant as it seems unless you're well above the standard.
There's a number for operating costs, but I'm not sure what that includes- there's a lot more maintenance in long term ownership, things like water heaters and roofs and furnaces have lifetimes in the 1-3 decade range so they're not insignificant on a per-year basis. Also rent usually includes some utilities.
True, changing anything big screws people who made decisions based on it, if that was what you meant -- maybe grandfather in deductibility of interest on mortgages pre-existing a change in the law?
Where do you factor in the benefit of not having a landlord?
We bought a house last fall. According the calculations, buying will be better for us in about 8 years assuming 2% price appreciation. I'm okay with that. We got a good price, below what comparable homes were selling for at the time, because the owners needed to sell and were spooked by the then-beginning market decline. We have no plans to move anywhere, and frankly don't want to. It would totally suck if we had to sell in the next year or two, but I don't see that happening. After nearly twenty years in apartments, I'm more than happy to pay a mortgage to finally have my own place. But if any of you people try and take away my mortgage deduction, I will hunt you down.
Where do you factor in the benefit of not having a landlord?
Right next to the detriment of not having a super? (Although actually, I own and still have a super. I love apartment living. Except that our co-op board is at war with itself and the managing agent right now, but that should shake out fine in a month or two.)
Ew, co-op. So you don't really own your apartment, you live in it at the grace of some other people's egos.
The roller coaster is cool. You'll have to pry my MI deduction from my cold dead hands. (Oh wait, is the AMT killing it anyway? I try not to pay attention).
I'm also convinced that the Mortgage Interest Deduction should be repealed. The thing that annoys me about it is that the wealthy get a higher net benefit (because their tax rate is higher). Why should the federal mortgage subsidy depend on someone's tax rate?
40: Yep, I have the capacity to cooperate with other human beings without finding it an onerous imposition.
Right next to the detriment of not having a super?
You seem to be implying that landlords actually fix stuff when things go wrong. So not quite an even balance between the two.
No, AMT doesn't touch mortgage deduction, but it does kill all the other stuff you probably want to deduct on top of it.
You'll have to pry my MI deduction from my cold dead hands.
Yeah, me too. Back off, commies.
Also, with co-ops, the monthly maintenance charges (in most of NYC, at least) are so high that it's like you're paying your mortgage and as much as many people pay in rent. After 9/11 when condo prices tanked downtown, I looked into buying and, while I could have maybe stretched to afford the mortgage, there's no way I could afford the mortgage plus the maintenance charges. The common charges were more than twice my rent in Virginia and that was on top of everything else.
Landlords are pretty variable, but my (personal) experience has been that the ones that don't bother to fix up the place are also the ones who don't care when you repaint, drill holes in the walls, or otherwise wreak (planned) havoc. The ones who do care about that kind of crap also (currently) do things like get blow-in insulation installed when you mention that the heat isn't warm enough (subtly, without mentioning the fact that you know that it's a violation of health code for it to not work this well).
What I wonder about the calculation is why it's the overall income tax rate they want, and not the marginal tax rate.
48: Yeah, it is weird having the sort of expenses that homeowners deal with on an adhoc basis (roof, heating, plumbing, etc.) turned into a monthly bill. I think it comes out about the same in the end, though.
the ones that don't bother to fix up the place are also the ones who don't care when you repaint, drill holes in the walls, or otherwise wreak (planned) havoc
This is true to a degree, but only a degree, and doesn't equal the combination of freedom to do what you want with the property plus the ability to get stuff fixed when needed that comes with owning. At least for an urban neighborhood, though, it must be acknowledged that owning a home doesn't mean you're completely free from needing to cooperate with others.
Count me among those who will man the barricades to protect the interest deduction.
You seem to be implying that landlords actually fix stuff when things go wrong.
I think landlords just paint stuff when things go wrong. Broken porch stairs? Paint 'em!
What about reducing the cap on the mortgage deduction? Like making interest on only the first $200,000 of home value deductable? I think the deduction is one of the reasons that housing costs have spiraled so out of control so limiting it to something lower might help keep annual increases more reasonable.
Can anyone find a site that helps you estimate your rental and home appreciation rates? I've been trying and I'm all googled out.
Broken porch stairs? Paint 'em!
Pour some Tussin on them.
38, 46, and 52 demonstrate that libertarians are right about everything.
What about reducing the cap on the mortgage deduction?
Is there a current cap? Regardless, a $200,000 cap is fine. Let inflation phase it away altogether over a few decades.
Well, they're certainly right about my specific mortgage deduction and marijuana laws.
Pour some Tussin on them.
Robo-trip!
Some years ago the "Economist" magazine compared housing costs/benefits incurred by owner-occupiers and public housing tenants. This was in the days [in Britain] when mortgage interest was tax deductible.
At the time [and probably even now] some folks used to grouse about public housing tenants paying below market rents, running Jaguar cars etc et - I'm sure you get the drift.
Much to many peoples' surprise [especially the grousers] it turned out the public housing tenants, over the course of their lifetimes, spent more, often MUCH more than owner-occupiers who had bought their houses on mortgages, and, of course, these tenants were still no nearer owning the roofs over their heads when they grew old/retired. This was especially the case when capital appreciation was factored in for the owner-occupiers.
As a direct result of this report - Apo with the Cold Hands watch this - a certain Mrs Margaret Thatcher had Mortgage Income Tax relief in Britain repealed.........
but the mortgage deduction isn't as significant as it seems unless you're well above the standard.
But that's kind of the point. I'm just about hitting the standard deduction with a 158k loan. A middle class house in most big cities will be much more than that.
Like making interest on only the first $200,000 of home value deductable?
This kind of screws the big city people.
As I said, the first year interest at 6% on $200k is about $10k, which is the standard deduction for married filing joint. Unless you have other deductions that put you over the standard deduction (which you probably do unless you hit the AMT), there is no benefit to having a mortgage deduction equal to the standard.
It sounds like what you want to do is 1) cancel the mortgage deduction; 2) give everyone a standard deduction of, say 5k per person (10k married), and then let them deduct other taxes, charity, etc. on top of it. That would be much more progressive, and wouldn't change taxes for people with mortgages under $200 to 250k. (Would kind of screw current single homeowners.)
59- Libertarians are right about drug houses!
Are you all ignoring 55 or just not trying? Hop to it, people.
And seriously, you deduction hating screwballs, don't we have enough of a problem with wealth distribution in this country? Must we concentrate the ownership of yet another resource in the hands of the wealthy?
It's not like the mortgage interest deduction in the US was a deliberate act of policy, with some kind of measurable goal. It just sort of happened, and then was too big to touch in the 1986 tax reform (which made other kinds of consumer interest non-deductable).
Erm, people substantially benefiting from the mortgage interest deduction are already doing better than most -- the objection to it is that it's regressive?
There's a certain degree of rationality to allowing interest generally to be deductible -- after all, that's the rule for corporations, and it used to be the rule for individuals. But making only mortgage interest deductible is a pure subsidy to the upper-middle class.
Is the deduction still good for up to 4 homes? Because that's crazy. (Unless I made that up. Not impossible.)
We don't know when we're moving, so it's renting for us.
But making only mortgage interest deductible is a pure subsidy to the upper-middle class.
Why not subsidize the middle class? And I think we're losing sight of just how much middle class can cost these days. In a large city, a cop and a schoolteacher will have a six figure combined income, and can easily spend half a million dollars or more on a house in a middle class neighborhood.
Why not subsidize the middle class?
Eye Boggle!
[you can imagine Tex Avery style 'awwooo-gah' sound effects too]
(Would kind of screw current single homeowners.)
Yes, and we [legally] single homeowners do thank you for thinking of us before condemning us to starve in the street.
You can deduct the interest on up to $1 million of mortgages; it's not for an arbitrary number of houses, but it does cover a primary residence and a second home (must be used 14 days per year, and includes mobile homes and houseboats).
65: I didn't bother looking because that seems like the kind of thing that's hard to find for free. It's fancy-pants investment-forecasting information, the kind of thing you pay your Wall Street Economist for.
Eye Boggle!
I am seriously not getting the problem here. A large middle class is still a good thing, right?
mortgage interest deductible is a pure subsidy to the upper-middle class
If you live in places that don't have completely insane real estate prices (like, say, here), home ownership is definitely not the exclusive province of the upper middle class. I bought my first house when our combined household income was less than $40K.
The top 15% of taxpayers get 50% of the benefit of the deduction, roughly; the top 30% get 75% of the benefit. That's not very "middle classs".
Data here.
re: 77
It depends, but to the extent that the state ought to be in the business of subsidizing anyone, it ought to be working from the bottom up.
78: Home ownership isn't the exclusive province of the upper middle class, but I suspect that you weren't coming out ahead much because of the interest deduction. Maybe $500 per year - would that have made or broken buying the house?
to the extent that the state ought to be in the business of subsidizing anyone, it ought to be working from the bottom up.
Well yeah, but in this country middle class tax breaks aren't the reason the poor aren't better subsidized.
The mortgage deduction is exactly the same as if the government wrote you a big fat check just for owning a house. Worse, the bigger the house, the bigger the check. This isn't screwing renters?
in this country middle class tax breaks aren't the reason the poor aren't better subsidized.
[Eye Boggle]
I think lots upon lots of politicians get credit for "helping out average people" with things like the mortage tax deduction that actually help above-average people and have no positive effect at all on poor people. Sure, the media is to blame for that, but it would be nice if it was otherwise.
However, much like this issue, I can't imagine it being otherwise.
We're getting away from the main issue: everyone should move into cramped studios decorated with remnants from JoAnn Fabrics.
Whatever happened to the purple shiny fabric?
gswift also thinks the estate tax is a bad idea because there are some purely middle class family farms that it might affect. (Not generally affect significantly, mind you, but affect nonetheless.)
Whatever happened to the purple shiny fabric?
Coo-coo-ca-choo, Mrs. Geebie, sparkly Labs has left and gone away,/ Hey hey hey...
I felt so ignorant when I found out about the tax break, not only on the interest on the mortgage, but on the interest on home equity loans. My sister, who owes about $50k for a master's degree she doesn't use, bought a house four years ago with her husband. The house appreciated over a couple years, they took out a home equity loan, and voila! paid off all their 'bad' debt. Obviously it's still debt but the sting is missing. I had no idea that home equity was how the middle class perpetuated itself and maintained stability. Sweet!
I also had an uncle who would rant about Equity all the time when I was younger, about how it was the only thing worth a damn in this world. I had no idea what he was talking about then, but I kind of see it, now.
gswift also thinks the estate tax is a bad idea because there are some purely middle class family farms that it might affect.
Don't be retarded. Quite a lot of this country lives in cities where a middle class home can easily run several hundred grand.
Which is not to say there's not room for improvement the tax code, but if I'm going to mess with the tax code, the mortgage deduction ain't at the top of the list.
Having lived someplace without a MI tax deduction, I gotta say I am sure as shit looking forward to that deduction when we buy later this year. Not being able to deduct that was part of what put us in the position of having to ask our relatives to buy PK's winter clothes for him while I was making a gross salary of $60-something.
And as Apo and Gswift point out, capping the value of the home screws people who live in cities or (ahem) states where even modest houses hover around the $500k mark. If you want to cap the MI deduction, do it according to the size of the house itself (1 br per resident or what have you), or the house's value relative to the state median, or something.
I have no problem with subsidizing the middle class when it comes to things like housing and education. As for 79 (the top 15% of taxpayers yadda yadda), that kind of statistic is incredibly misleading: the gap between the top 1-2% and everyone else is the really huge one. Six figures in California gives us about the same standard of living as half that in rural NY state. The "top 10%" is more a measure of regional cost of living than it is of actual wealth (except inasmuch as being middle- to upper-middle class is, strictly speaking, wealthy in comparison to most people. But I thought that in theory that was supposed to be the standard of living that Americans were supposed to consider normal).
I live in one of those absurdly expensive little boxes and I think the mortgage interest deduction is an abomination, albeit an abomination that probably ought to be phased out rather than repealed all at once. It manages to be politically untouchable because it delivers a little bit of subsidy to a whole lot of people, but way too much of the benefit is directed way too high on the income distribution. Plus I think we spend too much of our money on housing anyway, so I'd prefer that government quit pouring gasoline on the fire.
I have no problem with subsidizing the middle class when it comes to things like housing and education.
Again, if that subsidy comes at the expense of people further down the income ladder, I do.
Jesus Christ, the libertarians really are right, aren't they?
B- if the gov't is going to subsidize the middle-class for "housing and education", shouldn't they subsidize the middle class for housing rather than home ownership?
Perhaps the two ought to be on an even playing field. But really, given the externalities, if they were going to subsidize one or the other, they'd be better off subsidizing renting.
I need sleep. B and the boys in North Carolina will have to stave off the rising tide of feudalism.
90: Yeah, all this tax and money managing stuff is new to me, too. Hiring H&R block to do our taxes this year was a revelation. "Oh, you mean I can deduct *that*? And *that*? Guess next year I'll have to keep receipts."
I wish I'd known I could deduct shit like computers and home offices when I was in fucking graduate school.
92: I can't tell if you're defending the MI deduction abstractly or just the status quo. I have some* sympathy for not changing the rules on people who made decisions based on those rules, but I really can't see any abstract reason that the MI deduction should exist - and again, it doesn't exist because someone thought it's a good idea, it happened by accident. If it didn't exist, prices would likely be lower to compensate; all the existence of the MI does is inflate some numbers and then subsidize the high end.
* the "some" is limited by thinking like that in 94, and also the fact that I'm a renter and would like to see the cult of homeownership BURN BABY BURN.
96 - of course, here in MA, we can deduct 50% of rent from our state taxes - at least up to $500/month.
any abstract reason that the MI deduction should exist
I'm pretty sure that the point of the thing is specifically to make it financially advantageous--in the short term--to help people buy rather than rent, which in the long term helps them built equity and creates a more stable middle class by doing things like helping people manage economic downturns and finance their own small businesses and pay for their own retirements. I thought this kind of thing was pretty much central to the liberal great society.
I'm with 96. It's outrageous that mortgage payments are tax deductible but rent payments are not.
Rent is deductible in MA for state income tax, up to half of the rent paid, not more than $3k per year- not much, but something to equalize treatment of housing.
101: The MI doesn't *have* a point; these are all retroactive justifications for something that happened by accident in the tax code. As for the "help beople buy rather than rent", I think the evidence is pretty clear that it only helps people who could already buy to buy more; the people legitimately on the margins of buying versus renting aren't helped.
96: Well, again (so not an economist, so not knowing anything about money here), isn't the *idea*, at least, that the middle class--and used to be, the working class as well--own and the poor and young rent? And that those renters who are renting b/c they can't afford to buy are somehow subsidized through HUD programs or something along those lines? Or, in extremely expensive housing markets, by rent control?
I really don't know what I'm talking about, so you can take my comments here as representative of how Joe Six Pack would view the question of getting rid of the MI deduction, probably. The immediate problem that comes to mind with making rent, or part of rent, deductible is that you'd have to make it a pretty simple line on the standard 1040 or even the 1040 EZ, otherwise a hell of a lot of people wouldn't take the deductions they're entitled to.
Yeah, I could maybe get on board with something like a down payment subsidy for first-time homebuyers. But if you were setting out to design a sensible program to encourage homeownership among middle-class folks who wouldn't buy houses without an extra push, you wouldn't come up with anything like the mortgage interest deduction we have.
What I want to know is, why can't I deduct my dub rental costs?
if that subsidy comes at the expense of people further down the income ladder
There are low income housing subsidies.
I can see the government wanting to encourage home ownership for the reasons in 101 but I think the current cap of $1M is having a counterproductive effect by helping home prices skyrocket. If the cap were lower (although I do agree that it should be adjusted for different parts of the country), I think it might keep prices more in check. A deduction that is trying to help make communities and families more stable isn't working if it's helping prices go up so much that most people are priced out of the market or paying half their salary for housing.
I'm pretty much with DaveL in 93. The MI deduction should be phased out.
That said, the externalities of home ownership, pace BL in 96, would seem to be positive, support subsidizing home ownership. In theory at least, people take better care of property they both live in and own ("No one ever washed a rented car"), and well-cared-for property has positive externalities for the owners of neighboring property.
109: But not remotely on the scale of subsidies for home ownership.
111: "support subsidizing home ownership" s/b "supporting subsidizing home ownership"
107: Admittedly true. I think the argument that tax subsidies of *any* kind encourage certain behaviors is pretty much bullshit (except for rich people and corporations): most of us do what we can afford to do when we do it, and if there's a subsidy, well, we're pleasantly surprised at the end of the year.
In theory at least, people take better care of property they both live in and own
I'm extremely dubious about this theory. Fixing shit is expensive, and the tendency to adjust to small inconveniences is pretty huge. But if you have to get new tenants every few years, and/or there are laws that give tenants the right to sue or withhold rent, you're pretty motivated to at least paint every once in a while and make sure all the burners on the stove work.
B you are straight-up contrary this morning.
In theory at least, people take better care of property they both live in and own
The other counterpoint to this theory (or at least to an extended version of it, that homeowners are more involved in the community and so on) is that its implication of causality is wrong. Becoming a homeowner is not the source of becoming an involved person; possibly the opposite, possibly both are the result of other factors.
115: "you're pretty motivated to at least paint every once in a while"
See 53.
I think the argument that tax subsidies of *any* kind encourage certain behaviors is pretty much bullshit
I contribute the maximum allowable amount to a Roth IRA I opened (a pretty decent chunk of my salary), something I likely would not be doing if it wasn't exempt from capital gains taxes. The higher education tax credits also make it much easier for me to go to school while I'm working. They're not perfect, but they do have an impact.
114: I suppose you might be able to make this claim true if you're sufficiently expansive about who you consider "rich".
I certainly have upper-middle-class friends who bought larger houses than they would have otherwise because of the MI deduction. (How do I know this? They told me so!)
The poor don't respond much to tax incentives of the "income tax deduction" variety because they don't pay much income tax. But if you put into place incentives affecting the sort of taxes they do pay (sales tax, sin taxes), it does affect consumption patterns.
116: Am I? I went along with your sex change suggestion in the other thread.
119: True, the Roth IRA is the exception that (imho) proves the rule.
110 -- You speak of skyrocketing homes prices as if that's a bad thing. It's the engine that's run the economy since fall 2001 (at least).
Depends on the behavior. If it's something strictly financial, like interest rates or retirement, then it does have an impact because it's all about the money. If it's a behavior you'd do anyway (drive a certain car, live in a certain place) there's less of an impact because presumably you're doing something for reasons besides just money.
That said, New Hampshire businesses make a living off people crossing from MA to avoid sales tax, even though it's technically illegal.
122: Yes, having housing prices be the engine that runs the economy is a bad thing, because when housing prices inevitably decline you're left with nothing. As is happening now.
124 -- So long as mine goes up, I don't care. That's really all I was saying . . .
124 -- And it's not like a bunch of old white guys gathered in a room one day and one of them said 'hey, how about we have an economy based on rising property values?'
I think of our current situation as less bad than some of the alternatives, not just as imperfect. (Which, of course, it is).
If it's a behavior you'd do anyway (drive a certain car, live in a certain place) there's less of an impact because presumably you're doing something for reasons besides just money.
The tax code certainly contributed to the proliferation of SUVs on the road: Read A Hummer of a Tax Break.
25 to 125
126 no, a bunch of old white guys gathered in a room and said "uh oh, high tech is imploding and Republicans are in office. How do we keep this going? I know! Housing prices!"
The problem with escalating property prices is that it's a boom that increases rather than decreases inequality.
Those who didn't get on the property ladder prior to some date or other are just screwed.
129: As are those who took on debt under absurd conditions (subprime loans) because they were desperate not to get left behind.
An economy running on increasing property prices is not sustainable, unless property spontaneously generates the ability to produce new shoes, handbangs, yachts, etc.
I'm not disagreeing. I'm just suggesting that if home prices hadn't appreciated beyond 1 or 2 percent in the five years from 2001 to 2006, things would look pretty different. And I'm not seeing that different would be better, in this case.
handbangs,
ATM.
But seriously, I agree with everything Brock and ttaM have said. A policy that comes down to straight income redistribution, and which benefits only people over a certain income and wealth level, is a bad policy.
130 -- I thought about responding to the Poorman post on this subject. It's not Bill's fault, but Hillary's.* If people hadn't run up so much credit card debt paying for prescription drugs, and other medical stuff, they wouldn't be so attracted to the comparatively low interest rates of predatory lenders.
* You don't know me, so I should clarify: this is a joke. It's not Hillary's fault, but Phil Gramm's.
It's not Bill's fault, but Hillary's Nintendo's. If people hadn't run up so much credit card debt paying for prescription drugs Pokemon cards, they wouldn't be so attracted to the comparatively low interest rates of predatory lenders.
127- That's a business deduction. I thought we were talking about personal deductions, because businesses (and the wealthy) have accountants to find odd deductions and will more often adjust their behavior accordingly. I was thinking of hybrids when I wrote that- many people who care about buying a hybrid probably were going to do so without a tax incentive, and people who want a Ford Executioner aren't going to buy a hybrid because there's a $500 credit.
What about Maestro Greenspan, who said people were wasting money on 30 year fixed rates when they can have a Low Low 3% NINJA mortgage!
137: I had no idea there was a tax incentive for buying a hybrid, but I knew all about the tax incentive for buying an SUV.
Not that I plan to ever buy a new car anyway.
138 -- I think it would be a pretty interesting quest to find the predatory loan borrower who was influenced in any way by Mr. Greenspan.
138: I was trying to remember when that famously nonsensical speech (about how people should really start refinancing into ARMs while rates are at thirty year lows) was.
140: Greenspan creates the conventional wisdom, as far as the press is concerned. The press then creates the conventional wisdom, as far as every non-radical American is concerned. There you go.
137: There's no practical difference between business deductions and personal deductions for sole-proprietorships.
Anyway, my point is that the class "behavior you'd do anyway" (regardless of the tax consequences) is much much smaller than one might naively think. (And that includes what you drive and where you live.) Especially over the long run.
And if we liberals forget that, we'll end up advocating some bad policies.
141- Google sayeth Feb 2004, just in time to blow a little more air into the bubble. The peak is generally regarded as August 2005.
Of course, over a year later he changed his tune, decrying risky new mortgage structures.
140- I'm sure they got more business because of it, people who heard they should look around for things besides traditional 30 year fixed. I don't know that anyone was saying in their sales pitch, "Come one, go for the option ARM, Greenspan says it's ok!"
It's all about the payments, people. There are plenty of programs even for first time buyers with no down payment. If you can afford the payment, you buy. The killer is the closing costs, and the loan fees. That is why if you move or get a new loan more often than every five years you are better off renting.
My experience wrt pred lending is ca. mid- to late-1990s, and so it's a different segment of society, and a different proportion of loans. I suppose there might have been some salespeople pushing the Greenspan line, although I still wonder how many people did something because of it that they wouldn't otherwise have done.
Where Greenspan's comments may have made a big difference is in the companies backing or acquiring the subprime lenders- many legitimate companies branched into subprime fairly recently, I wonder if a green light from Alan may have helped (although he was only talking about standard ARMs, which I have on my house, not things like options or teasers.) Also, the financial markets have to buy the securitized loan packages, and Greenspan's comments may have increased demand for those as well.
It wasn't Greenspan's comments, it was the profits that the sub-prime market were generating that caused firms that should have known better to either enter the sub-prime market or buy out exsiting sub -prime lenders for ridiculous premiums.
Another vote for the libertarians being right about everything.
The libertarians are wrong about everything except for my mortgage interest deduction and stupid "morality" laws about sex, etc. Oh, and I guess on principle they're right about drug laws though really if I were king tomorrow I would legalize pot and the cokeheads could all rot together in the world's yappiest jail, each prisoner more self-important than the next, for all I care. I wouldn't vote Lib to preserve my MI deduction but I would sit with TLL in the lunchroom if he'd have me and that is not a euphemism.
150. Better idea, I'll treat you to lunch at the club.
the cokeheads could all rot together in the world's yappiest jail
Teh funny.
But pot and cocaine are the same thing. Basically.
120
"I certainly have upper-middle-class friends who bought larger houses than they would have otherwise because of the MI deduction. (How do I know this? They told me so!)"
This may be an illusion based on the (probably false) idea that the MI deduction does not affect prices. It may be that without the MI deduction your friends would have bought the same houses but for less making their after tax cost about the same.
The claims that the MI deduction has no reason to exist are not exactly correct. There is a theoretical case that the real loophole is that you aren't required to report the imputed rental value of owner occupied housing as income not that you are allowed to deduct MI. However the practical difficulties in taxing imputed rental value are probably insurmountable.
151: I'll even talk about your work with you so you can deduct it if you want!
152: Because it is true.
153: "Dude, you've got a little bud sticking out of your left nostril."
I also don't report as income what it would cost me to rent a car if I didn't own one. My wife also doesn't report the cost of the food I buy for her or the free rent she's getting in exchange for caring for our children. Loopholes everywhere!
I guess that all interest used to be deductible from your income for taxes, but (in the 80s?) they removed the deductibility from everything except home loans as part of the tax code simplification.
I think it's not so much predatory lending as a big uptick in securitization of mortgages / CDOs, and a general lack of better places to put one's money. Be interesting to see who gets left holding the bag / who gets bailed out.