Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

114 responses to “Good Ideas that Home Salespeople Hate”

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  1. Azucar

    By deejayoh @ 31:

    By Pegasus @ 29:
    RE: deejayoh @ 27 – Even if your 80 percent is correct and two thirds of them have a mortgage only 20% of American households itemize their deductions on their tax returns, while about 65% of American households own their own homes. Guess what? If you think it will be decided by voters you will lose. The real estate industry will make or break the deduction through lobbying.

    Well, actually it’s 34% of tax returns that itemize (as of 2008, and that figure has been rising) and even that figure is misleading because it ignores the impact of married couples (who also disproportionately own homes) that file together on a single return – so it really doesn’t tell you much except that your claim of 20% of households is almost certainly understated.

    Next argument?

    So using your numbers, if 34 percent of returns itemize, that means that 66 percent take the standard deduction. Married couples filing together on a single return get a higher standard deduction than single filers, so I’m not convinced that the 34 percent of itemized returns really correlates to more than 50 percent of voters taking the mortgage deduction (as you imply it does)… and that’s what it boils down to. What percentage of VOTERS benefits from the laws the way they are versus if it were changed to eliminate the mortgage deduction? Eliminating the deduction should theoretically allow the government to increase the standard deduction while maintaining the same tax revenue. Therefore, everyone who is currently taking the standard deduction (more than 50 percent of the voting population) should benefit from elimination of the mortgage interest deduction. And even if you generously assume that the 34 percent rate of itemized returns represents more than 50 percent of the voting population, some of those voters probably wouldn’t be itemizing if the standard deduction were increased… they’d get more benefit from an increased standard deduction than they get from itemizing.

    So in my opinion eliminating the mortgage deduction would not necessarily be a negative from the standpoint of the popular vote.

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  2. Hugh Dominic

    By Scotsman @ 93:

    RE: Hugh Dominic @ 83

    I still think your expectations are unrealistic. The average stay in a home is less than 7 years. And while not as liquid as stocks or other asset classes homes do sell on a regular basis, even fairly rapidly when priced right. And why should age be treated any differently than say physical accidents, illness, tech changes that lead to layoffs, or other disruptions to income streams?

    They shouldn’t, if those things be quantified as risk factors they could also be used to gauge credit risk. Aging out of the work force certainly can be. Occupational industry and experience could be. Medical fitness could be (e.g. Smoking, weight). Whatever.

    But what we have now is a system that is set by public policy, not by effective risk measurement.

    A million years ago, banks actually met the borrowers, interviewed them, took a down payment, and fretted over whether they would be paid back before making the loan.

    More recently the government declared home ownership a public interest and got into the business of issuing ineffective blanket rules for assessing and guaranteeing borrower credit risk. Someone decided that showing up with two pay stubs and a credit rating was all you needed to prove to the public’s satisfaction that you were good for 30 years of payments on a $400k house. The banks were let off the hook and allowed to originate loans to any warm bodies that passed that test and could sell them (along with the risk) to the taxpayers and forget them.

    This is insane. My preference would be for the US to get out of the business of home loans entirely, as it is clearly unfit for the job, and force lenders to really think about who they loan to, how much, and for how long. But if my own tax burden is going to be used to create loans, then at least let us get more intelligent about our standards.

    Did you know the US taxpayer is the #1 owner of foreclosed homes?

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  3. Hugh Dominic

    RE: Hugh Dominic @ 2 – Sorry, now I’m all fired up and must continue.

    It’s not even that the government declared home ownership a public interest. That may have been the case at one time, but now that is just the cover story for industry lobbies, interest groups, and social engineers to use government policy to enrich themselves. These standards have been shaped to maximize their benefit at the expense of the taxpayer, and to leave the average person in tremendous household debt right into their retirement.

    The sooner you recognize that, the sooner you will see that these policies that you think you depend on are in fact your worst enemies.

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  4. Hugh Dominic

    By David Losh @ 98:

    RE: Jonness @ 95

    I don’t understand how the tax payers get stuck. I’ve heard that, but I also know that banks have made billions more since we gave them money. Isn’t that money supposed to be coming back?

    Oh, how I long to be so naive again. You are thinking only of TARP. That was just a sideshow.

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  5. Pegasus

    RE: Azucar @ 1 – Another study demonstrates that the removal of the mortgage interest deduction only increases taxes for 23.5 percent of the tax payer units. The mortgage interest deduction is regressive in nature primarily benefiting the financial better off. Removing the deduction results in an average increase in taxes of $559.00. The bottom 20 percentile of incomes would see their taxes increase by a whole $2.00. The next 20 percent by $32.00, the next 20 percent by $215.00, the next 20 percent by $689, the 95-99 percent by $4234.00 and the top 1 percent by $5393.00. Clearly the mortgage interest deduction mainly benefits the financially better off with the largest deductions going to the financially elite. The majority of tax payers units get little or no help from the mortgage interest deduction. Another study estimates that the mortgage interest deduction artificially raises the price of housing by ten percent. Finally, the mortgage interest deduction has done little to nothing to increase home ownership rates. It clearly is a financial boon for the better off and the wealthy at the expense of the rest of the tax payers.

    See Table 2a on page 19 for the percentile breakdowns of taxpayer units: http://www.urban.org/uploadedpdf/412099-mortgage-deduction-reform.pdf

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  6. Kary L. Krismer

    A couple of side issues on the mortgage interest deduction. If you remove the deduction entirely, then given the fairly healthy standard deduction, the deductions for many other things (e.g. state taxes, health care costs, etc.) would become practically meaningless. They could reduce the standard deduction to account for this, hopefully reducing rates at the same time to compensate. But when they start doing things like that, it won’t be as clear who is benefiting and who is paying more. I see that as another benefit to simply restricting the deduction, because there you better know who the change is hitting.

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  7. doug

    RE: Azucar @ 1

    Remember the ****storm that ensued when they tried to reset the top 1%’s income tax 3% higher? People don’t vote strictly by their own self-interest.

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  8. David Losh

    RE: Hugh Dominic @ 104

    How were we stuck? I don’t get that.

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  9. David Losh

    RE: Pegasus @ 5RE: Azucar @ 1

    You should be debating tax reform. Taking one part of an over all system of tax deductions that only benefit those who use an accountant is like drawing the line between who uses H and R Block, and those who have an individual accountant.

    We can all deduct. We can all become our own set of tax write offs, it’s just a matter on whether it’s worth it.

    I almost forgot, how does the government owning all those foreclosures become a government issue? Shouldn’t we be looking at the lenders, banks, and investors?

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  10. Pegasus

    By doug @ 107:

    RE: Azucar @ 1

    Remember the ****storm that ensued when they tried to reset the top 1%’s income tax 3% higher? People don’t vote strictly by their own self-interest.

    Actually they do. When that top 1% is paying your way you vote how you are told. Don’t and the contributions into your coffers disappear. Its self-preservation.

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  11. doug

    RE: Pegasus @ 110

    Point taken. I was talking more about the populace in general, but who’s a person to vote for to vote against corporate pandering today?

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  12. Edward Smith

    On the latter half of the article. I guess that means that VA loans have a super high default rate since they are 0 or 1% down loans. I can’t believe that. Does anyone know the default rate of VA Loans?

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  13. Keith

    I don’t think either of reforms you are advocating actually make sense — and I’m hardly a Real Estate industry shill.

    1. 20% down requirement
    I tend think this will lead to less middle class home ownership. Most people cannot afford to save 20% of a house price, which is likely to lead the market for rentals to heat up to where rental properties will be very profitable for people with the cash to buy. The end result (after the current unusual market conditions subside) will not be a deflation in housing prices, but a (even more of) land owner class vs. a rentor class… of course, it will be the land owners who will benefit from that situation — not the people who are forced to save up 20%.

    2. Repeal the home interest tax break
    What you are not mentioning is that people who buy expensive property also pay higher property taxes. For me, this deduction is approximately a wash with the property tax I pay – so the benefit of buying an expensive house is really just a trade of a federal tax for a local tax.
    Maybe a cap on the tax break would make sense. Lets say a $15k maximum deduction with an escalator for inflation. What does that look like?

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  14. robroy

    I’m a huge fan of eliminating the interest tax deduction, and it makes me few friends. It is where government manipulation of it’s citizens through tax policy hits us all. And, unfortunately, since most people vote their wallets, they are opposed to it. And the electorate always voting their wallets is what has gotten us into the economic mess we are in.

    I love the freedom of purchasing what I want and doing what I want based on my ability to afford it and physically do it as opposed to the tax benefit/hit. That makes me feel like a slave to the state, and it is a very icky feeling.

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