Should your tax dollars be used to subsidize mortgages of up to $750,000? My guess is that most people would say no to that and the Feds will soon be bringing policy in line with those sentiments. As reported in today’s New York Times, the size of home mortgages that will be guaranteed by the Federal government will soon shrink by about one-third. Those already owning homes in expensive areas and especially those wanting to sell those homes, feel that such a move would unduly penalize them in an already stagnant housing market.
With foreclosures beginning to rise and the housing market still stagnant, now is a bad time to alter government policy in a way that will further depress housing prices. Still, there will never be a good time to do that so the proposed reductions should just be implemented as soon as possible which is probably the first step in getting prices to where they should be – that is, what the market says they should be. Maybe those really expensive areas shouldn’t be so expensive after all. Once this government policy is discontinued, perhaps the home mortgage interest deduction on Federal income taxes will be the next housing market subsidy to be discontinued.