Do it for the Taxes: Did Changes in the Tax Code Help Home Ownership?
It has been referred to as the accidental deduction and with good reason. The Mortgage Interest Deduction or MID was never intended to bolster or support the ownership of homes in the United States. But despite the intended consequence of it, it seems to still be a motivating force in the purchase of a home. Or is it perhaps more than an accidental deduction? It may be an unintended benefit.
Did the Mortgage Interest Deduction Help Homeownership?
The short answer is no. Owning a home, often referred to as the American Dream, is and has for most of the century preceding this post, left one-third of the country still dreaming. At times, particularly during the Great Depression, the ownership rates have fallen below 50%. You might think that this would be a given, considering the economic turmoil of that era. But it didn’t fall as far as you might expect. During and for some time afterwards, 43.6% of the households were owner occupied, matching the 1890s. Keep in mind, MID was created in 1913.
What Increases Homeownership?
To draw a conclusion, one might simply look at the post WWII era. During the time that war ended until 2004, when home ownership reached its high of 69%, there were reasons other than the tax advantages that were present at the time that served to keep home ownership low. After the Great Depression, mortgages were so prohibitive that few people could meet the rigors of the loan demanded by the banks. In fact, the typical mortgage often had terms restricting the loan to fifty percent of the home’s value with a payback period of three to five years followed by a balloon payment. Clearly, it was prosperity, not tax breaks that increased the ownership of homes in the U.S.
So if not Tax breaks, then what?
In the post WWII boom, the creation of the Federal Housing Authority in 1938 and the Veterans Administration a decade later allowed bank to lend money without fear of default. With affordable rates and already low income tax rates, the world of homeownership burst open. So if you think that buying a home will save on your taxes, you would be right. But it is actually your increased prosperity, your ability to save and be creditworthy that makes buying a home possible. Taxes, as my father once quipped, are only proof that you are alive and working.
How can we assist you today?
On behalf of The Jones Group @ Sunriver Realty
Nola Horton-Jones, Principal Broker/Realtor | ABR, C-RIS, e-PRO, GREEN, RSPS, CCIM Candidate
Bryce Jones, Principal Broker/Realtor | ABR, CRS, e-PRO, GREEN, GRI, RSPS, SFR
The Jones Group @ Sunriver Realty | 57057 Beaver Drive | Sunriver, OR 97707
N Mobile: 541-420- 3725 | B Mobile: 541-420- 4018 | Fax: 541-593- 5123
Licensed in Oregon