Tags: mortgage interest deduction | housing market | Fannie Mae

Economist: Fix the Housing Market by Ending the Mortgage Deduction

Friday, 26 Aug 2011 04:22 PM

New York University finance professor Viral Acharya says the only way to fix the housing market is to end government subsidies, including the mortgage interest tax deduction.

“In the short run, (ending the mortgage interest deduction) will produce a price correction,” Acharya tells Yahoo Finance, adding that subsidies “have propped up the housing market artificially.”

Because subsidies make owning a home appear more desirable, they tend to raise housing prices. “You are actually paying more for the property you would have liked to consume," says Acharya. "Therefore, the real subsidy goes only [to those] at the very top.”

“It is for people who are buying a second house. It is for people who are buying more land than they would otherwise."

Not only have government subsidies failed to really help everyday people, Acharya says they are "sort of a Ponzi scheme, because the current generation is reaping all its benefits, but we're basically scaling up our government debt in response, and someone else is going to pay for it down the road."

Acharya says that allowing first-time homebuyers and others in need to write down part of the principal on their loans might be a better, fairer alternative.

Market Watch reports that U.S. home prices rose a seasonally adjusted 0.9 percent in June, but are still down 4.3 percent in the past year, according to the Federal Housing Finance Agency index. Prices rose in seven of nine regions, led by a 3.3 percent gain in the Great Lakes states.

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New York University finance professor Viral Acharya says the only way to fix the housing market is to end government subsidies, including the mortgage interest tax deduction. In the short run, (ending the mortgage interest deduction) will produce a price correction, ...
mortgage interest deduction,housing market,Fannie Mae
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2011-22-26
Friday, 26 Aug 2011 04:22 PM
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