How Does the GOP Shift in the House Affect Housing?

With nearly all votes tallied for the 2010 election, it appears as though the House will be held in the majority by republicans.  This shift in governance brings ideological changes to how our government will approach a variety of issues.  With Real Estate being such an important aspect of wealth in America,  undoubtedly new policies will come into play that directly affect how homeowners and home buyers will be taxed, have access to financing, and a host of other issue.  The Wall Street Journal tackled a few of these in an article today.

To round it up:

• A debate recently placed on the back-burner very well may start hearing up again.  Housing Subsidies such as tax deductions for your mortgage interest will get closer scrutiny as ‘deficit watchdogs’ move into office (as was their platform).  Currently, the mortgage interest tax deduction costs the US over $125 billion in tax revenue each year. This is second only to employer-provided healthcare benefits that tops out around $200 billion a year.  If republicans are unwilling to raise income taxes on the wealthy, this could potentially be one back door into reducing the deficit, currently billed at about $1 trillion per annum average over the next 10 years.  Some argue that the tax deduction currently favors the rich who would buy a house regardless of the deductions (or if not favor at least is unnecessary for them), and others say the deduction favors those in the beginning of a mortgage (generally younger) as the interest payments are higher and therefore more can be deducted.
• Another option that democrats had been mulling over is to ease regulations on refinancing.  Interest rates have not been this low in 60 years and refinancing offers people an opportunity to pay lower monthly sums.  However, this presents a problem to investors of mortgages as the higher interest rate gives them them a better return on their investment.  Again, the classic dichotomy of business/investors vs. the people, largely mutually exclusive these days.
• The big elephants in the room are Fannie and Freddie MAC.  These are considered ungainly institutions that though they meant well have recently become the insured garbage cans of the mortgage world.  Republicans would like to see the two companies lose prominence and wind down to a private market, something not necessarily opposed by the Obama administration and democrats.  The issue is that some consumer favoritism, like 30 year fixed mortgage loans have been instrumental in perpetrating the American Dream of home ownership.  At current interest rates a 30 year fixed loan is less interesting to investors and banks who make less Vig in the long run.  UPDATE:  Check out this article from the Times regarding Freddie Mac’s $4.1B loss in the 3rd quarter of 2010.

 

There is certainly a potential for some shake ups in real estate in the next two years.  Whether or not anything at all will get passed with a Republican House and a Democratic Senate is to be seen of course.