Morning Report: RIP the mortgage interest deduction? 10/10/16

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US dollar index 87.6 -0.2
10 Year Govt Bond Yield 1.72%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.54

Bonds are closed today, but overseas bond markets are weaker. Stocks are up.

No economic data today. The week after the jobs report is typically data light to begin with, and there really isn’t anything market-moving this week, except for may the PPI on Friday.

Dave Stevens of the MBA raised the issue of eliminating the mortgage interest deduction, albeit with the caveat that it be done in the context of tax reform, with lowering rates and eliminating deductions. He wasn’t advocating eliminating it in a vacuum.

If Donald Trump wins, tax reform is a definite possibility. If Hillary wins, will she be more like her husband, willing to deal with Republicans to get something done, or will she be more like Obama, where both sides had hardened positions? If you were going to eliminate the mortgage interest deduction, it will certainly make housing less affordable and would have a dampening effect on home price appreciation. That said, with rates as low as they are, interest payments as a percentage of your mortgage payment are at all-time lows. So if you wanted to eliminate it at the time when it causes the least amount of pain, now is the time to do it.

Republicans will never support eliminating deductions without cutting rates, and the historical bargain between right and left (Democrats trading increased taxes and spending for increased defense spending) might not work this time around. Believing in that trade was what got us the sequester, where Obama found his bluff called, as Republicans tolerated lower defense spending in exchange for lower discretionary spending. Given the general war fatigue of the American voter, Republicans are probably not going to be willing to trade increases in defense spending for more social spending, and certainly not for tax increases.

Punch line: the mortgage interest deduction probably isn’t going anywhere.

That said, the US subsidizes the residential real estate market six ways to Sunday, with the mortgage interest deduction, the 30 year fixed rate mortgage (try finding that anywhere else on the planet), taxpayer backing of almost all new origination, and the cornucopia of subsidies for affordable housing. Not to mention the central bank targeting of mortgage rates and real estate prices. And the powers that be still scratch their heads wondering why we had a real estate bubble…

Mortgage credit availability improved in September, according to the MBA.

19 Responses

  1. Frist!

    Did not watch the “debate” last night. Here’s a palate cleanser for anyone who might have:

    And that’s what I’m talking about. Game shows make America great.

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  2. “If Hillary wins, will she be more like her husband, willing to deal with Republicans to get something done, or will she be more like Obama, where both sides had hardened positions?”

    I suspect the former. That’s also how she behaved in the Senate. Her worst political relations could actually be the left.

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    • JNC, I hope you prove correct. RWR and WJC set the standard for interparty schmoozing under fire, a standard that BHO totally flunked once Boehner was gone and which he did not get better than a D even with Boehner.

      Of course, Ike was the most persistent of all – poker with LBJ and Rayburn in the WH kitchen almost every Monday night, plus bourbon, and voila! Interstate Highway System.

      She won’t be Ike, or RWR, or WJC, but she should emulate them, rather than BHO.

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  3. i’d like to know why $250,000 is the magic line for rich/not rich

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  4. The Atlantic and Bloomberg are going after Trump’s “You’d be in jail” applause line with editorials sniffing that victors don’t jail the losers in a democracy..

    Seriously? That is the marching orders hillary’s campaign gave to the press? Lame..

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    • I think that is too cynical, Brent. The far left wanted Cheney and GWB to be prosecuted, but cooler heads never considered such a thing, and some of the same media were among the cooler heads then, as well, right?

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      • I was referring more to the media and the clinton campaign’s response to their “You’re no Jack Kennedy” moment..

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      • mark:

        I think the problem is the pretense, pushed enthusiastically by the media, that Trump was actually proposing to “punish” his political foes by going after them legally. It seems clear to me he was simply suggesting that she’s already broken the law, and wouldn’t be protected from prosecution for her already existing crimes if he ran the Justice Department. But instead of the story line being Hillary’s crimes, it becomes Trump the tyrant using the law to punish his political enemies.

        I would bet anything that, if it appeared that Trump had, say, illegally avoided taxes and Hillary suggested that as president she wouldn’t let Trump get away with it, the MSM story line would not be about how Hillary was proposing to punish her political foes.

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        • what Scott said. when is said that, i turned to my wife and said “he’s talking about the DOJ being used to shield Clinton, but the spin will be is a two-bit dictator”

          you’d think that with them being so predicable, we could beat them.

          Liked by 1 person

        • “you’d think that with them being so predicable, we could beat them.”

          The GOP can (and has, in the past) . . . Trump, despite what Scott Adams says, does not seem to be big on tactical planning. If he’s playing 3-dimensional chess, I don’t think it’s on purpose. Thus he just walks into thing, repeatedly.

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      • Trump walked right into that one. Assuming he actually wants to win, it was a stupid thing to say. It plays right into the narrative of his critics, and would be ill-advised for any presidential candidate. Even talking about prosecuting a political opponent is a task that should be reserved for surrogates, for people down the chain. Whatever point he was trying to make, it was ill-conceived. Obama didn’t run on pledging to prosecute McCain, Palin, or Romney, even though Obama possibly would have been lauded for doing so by the media if he’d pledge to prosecute Romney for animal abuse. It’s what thing to sell the sausage, quite another to publicly show video of it being made.

        He remains, politics aside, just an awful candidate.

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        • I think the politicization of the DOJ is a legitimate issue that any non-D candidate should be talking about. And the HRC investigation is the poster boy for that politicization. He could do it in a more artful way, but frankly I get tired of the constant discussion of tactics at the expense of substance. If Hillary really does belong in jail, that is a far more salient fact than is the way in which Trump (or anyone else) goes about saying it.

          I do agree, however, that he is an awful candidate.

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        • What I find funny it that no one, literally no one, has come out and said that she has not committed a crime worthy of jail as a punishment. No one is protesting her innocence!

          Liked by 1 person

        • “He could do it in a more artful way, but frankly I get tired of the constant discussion of tactics at the expense of substance.”

          I don’t disagree, but you can’t avoid tactics. If you could, that would be awesome, but you can’t. I’m dubious that you can avoid politicization of the DOJ, from one direction or the other—in the abstract, in an ideal circumstance, of course, but like Communism the problem is the ideal situation has to be overseen and populated with fallible human beings.

          DJT is a “ever pass is a hail Mary” kind of guy. Which ultimately is a problem, and generally doesn’t give me any sense that a Trump administration would do anything positive in terms of the DOJ. Not that I think HRC will (I’m sure it will be more of the same or worse, unless she accidentally gets someone in there who operates on principle rather than politics and partisanship, which seems highly unlikely).

          But I’m not entirely unsympathetic to an admittedly biased press’s response on this one. He may have a legitimate point, but he’s wrapped it up in a package that kind of heavily hints at “I will jail all who opposed me!”

          Omarosa’s comments that everyone who opposed Trump would be made to bow down probably didn’t help. African-American outreach!

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        • KW:

          I don’t disagree, but you can’t avoid tactics.

          Candidates can’t avoid tactics. The media/voters can.

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        • “What I find funny it that no one, literally no one, has come out and said that she has not committed a crime worthy of jail as a punishment. No one is protesting her innocence!”

          Spend some time on PL.. It is all a big nothingburger cooked up by Rupert Murdoch and the “alt-right dunces” whoever they are..

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        • “What I find funny it that no one, literally no one, has come out and said that she has not committed a crime worthy of jail as a punishment. No one is protesting her innocence!”

          In part, because they know “crime worthy of jail” is a very amorphous and emotional thing at their level. And I think there is a base-level understanding that people at her level have to be caught live on tape murdering people to go to jail. She ain’t no mayor. She ain’t no plain vanilla millionaire. Etc.

          But I think the main issue is *defending* Clinton in this context is not helpful, while emphasizing Trump’s authoritarianism and tin-pot-dictator aspirations (apparent, in any case) is very helpful to Clinton, or perceived to be so. So the pros are emphasizing that.

          The idiots out there (and there are plenty, Robert Reich among them) are busy wagging their fingers and condemning every person who didn’t immediately denounce Trump from some point before he started his birther campaign.

          Fear of Trump’s totalitarian aspirations is a great incentive to vote for the other entrenched political elite. Trying to make everybody who ever supported Trump, or did not even adequately denounce him, feel like an idiot and/or a monster is self-flattering for the people making the memes and posting them everywhere, but is not a helpful campaign strategy. You don’t win a single vote with that garbage, and I’ve been seeing it everywhere. “Be ashamed and appalled that you ever supported Trump! Why didn’t you oppose Trump earlier, when he did this and that and the other thing! You are monsters and horrible people. Vote Clinton!”

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        • “It is all a big nothingburger”

          That’s the PL line on Clinton. Because she’s never actually be prosecuted or gone to jail for things that would get lesser folks put in jail. By that logic, Ford’s pardon of Nixon means Nixon didn’t actually commit any crimes, because, you know. Reagan and Oliver North didn’t do anything wrong, it’s all just a big nothingburger! Iran-Contra was just a trumped-up scandal from mean, vindictive Democrats with nothing better to do … yada yada. But somehow it doesn’t work like that.

          Like

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