Morning Report: Discussing the mortgage interest deduction 11/6/17

Vital Statistics:

Last Change
S&P Futures 2582.0 -1.0
Eurostoxx Index 396.3 0.3
Oil (WTI) 56.0 0.3
US dollar index 87.9 0.0
10 Year Govt Bond Yield 2.32%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 3.95

Stocks are flattish this morning on no real news. Bonds and MBS are up.

It should be a quiet week with respect to market-moving data and Fed Speak. New York Fed Governor William Dudley speaks at noon today, and that is it for the week. William Dudley is set to retire in mid-2018.

Work on tax reform continues, with both the House and the Senate drafting their own bills. Blue state Republicans (especially in CA, NY and NJ) are fighting to save the state and local tax deductions. The House hopes to vote on the bill next week. My sense is that the path to passage is so narrow that it will be a largely symbolic bill designed more to achieve a legislative victory than to reform taxes. I also think the estate tax will survive in order to save the state and local tax deduction.

White House economic advisor Gary Cohn says that he doesn’t think eliminating the mortgage interest deduction will affect the housing market. “The ability to deduct interest is a component that allows you to buy a bigger house, not what drives you to buy a house,” Cohn said during a Bloomberg Television interview Friday. It will affect the luxury market (especially in areas like the Northeast, where the luxury market is already weak),  but with the median house price around $245,000 limiting the mortgage interest deduction to $500,000 won’t affect most MSAs. If you wanted to eliminate the MID at a point where it will cause the least amount of pain, now would be the time to do it, simply because low interest rates are making the interest portion of the typical mortgage payment small by historical standards. Back when interest rates were super high in the early 80s, almost 100% of your first year’s mortgage payment went to interest. Today, about 70% is interest.

mortgage interest

The National Association of Realtors weighed in on the mortgage interest deduction as well, and they are against changes to it, as you would expect. They commissioned a study earlier this year that predicted a 10% drop in home prices and that homeowners with incomes between $50,000 and $200,000 would see an average increase in taxes of $815.

One wrinkle to the change in the MID is that it applies to newly-purchased homes. So, if you haven’t moved, your existing MID would not change. That will make depress existing home sales at the margin, but I can’t see people staying put simply because of tax treatment of mortgage interest. People move for various reasons, but tax treatment usually isn’t one of them. Regardless, if this provision stays, the death of the MID will have a much less dramatic effect than people are forecasting.

Loony Lefty Jill Stein – Russia, Part Deux

Loony Lefty Jill Stein and the Russian influence investigation

Who is this loony? She claimed:

1] There are “real questions” about whether vaccines cause autism in children.

2] wi-fi in schools might be harming kids.

Her dependence on RT was notable:

3] RT regular Ajamu Baraka, who slammed the “gangster states of NATO,” was her choice for VP.

4] The only network to consistently cover her candidacy and invite her on air was RT.

5] RT hosted a primary debate for the Green Party.

6] She travelled to Russia in 2015 to attend that dinner where Putin lauded Flynn.

7] Shortly before that she attended an RT event and met with the Ambassador.

8] Claimed no knowledge of how and why Assange addressed the Green Convention on closed circuit to promote the wikileaks/Russian exposure of DNC emails.

9] Pretty much spouted the Russian lines about HRC throughout the campaign.

Now she claims that Senate committee interest in her Russian ties is an attempt to smear her and that she sees no evidence of Russian interference during the campaign season, because the intelligence community is often wrong.

Back in the day when the only foreign money in an American campaign was Canadian, MX, or Brit, generally from investors in multinational sellers like Schenley’s and Molson’s and Dos Equis, and generally to both parties, this was all tolerable. It was during the Clinton-Dole race when Chinese and Indian money went to Clinton and Saudi money to Dole in very big sums that we saw how campaigns could be bent and beholden. The Russians knew that this loony was a spoiler on the margins, and they knew that DJT was not a cold warrior R. Their objective was disruption and fragmentation of their adversary, and they could pick a D next time if it suited them, which it might well, against a traditional R.

I don’t know how we can possibly stop it from happening again. But somehow, keeping anti-American, as opposed to simply commercial, interests out of our campaigns would be a good thing. My guess is that the best we can do is continuing exposure.

Could we force American media voting ownership to be limited to American citizens? Would there be a constitutional bar? Could we create a credible ombudsman to expose the source of digital media rumors, in a timely fashion?  I wonder what the Intelligence Committees will advise.

And Jill Stein remains a complete loony.

%d bloggers like this: