Buying a home isn’t such a good deal anymore

MPR News’ Matt Sepic reports today that home buyers are being squeezed in these parts because there aren’t enough home sellers. Land prices are too high so the homes that are being built may not be that affordable.

Maybe it’s just as well.

Buying a home isn’t the deal it once was, CNBC points out today. The days of a home as an appreciating investment may well be done.

With mortgage rates being so low, there’s not much of a tax savings for owning vs. renting.

“It has removed one of the main reasons people had urgency to buy,” real estate consultant John Burns tells CNBC. “High rent should be a kick in the pants, lowest interest rates should be a kick in the pants, but I think if you were getting a tax break too, I’m sure we’d see more entry-level buyers.”

But why should a home buyer get a tax break at all? Are they better than renters?

In focus groups of people who are buying homes, hardly anybody mentions tax breaks anymore, according to CNBC.

The standard marital deduction has risen from $1,300 in 1972 to $12,600 today, meaning that the first $12,600 of itemized deductions has no benefit to consumers.

According to Burns’ analysis, a typical first-time homebuyer, financing 95 percent or less of a median-priced U.S. home (around $200,000) pays less than $12,000 in mortgage interest and property taxes annually. That is not enough to hit the itemization level.

Even with other deductions that bring the taxpayer over the $12,600 limit, the tax savings are minimal.

Seventy-seven percent of the mortgage interest deduction benefit went to people with incomes higher than $100,000, says the Center on Budget and Policy Priorities, which favors eliminating the mortgage interest deduction and replacing it with a mortgage interest credit.

That’s unlikely to happen. In fact, nothing is likely to happen. It remains a popular tax deduction even if fewer and fewer people are going to able to benefit from it.