Don’t fix what isn’t broken. Whatever the outcome of Tuesday’s elections, that is likely to be one view of the housing market, especially given its nascent rebound. Home prices continue to rise, as shown by the latest S&P/Case-Shiller data; sales activity is strengthening, while delinquency trends improve.
The mortgage-interest tax deduction makes little sense given the government’s bleak, long-term fiscal outlook. That subsidy may become an issue given the looming “fiscal cliff” and calls for a tax-code overhaul.
That argues against attempts at a housing-market overhaul for fear of sending activity, and prices, into a tailspin. Plus, housing finance has become a political third rail since attempts at change could endanger the 30-year, fixed-rate mortgage as it currently exists.
Reinforcing the tendency toward inaction no matter who wins the White House, mortgage giants Fannie MaeFNMA +7.30% and Freddie MacFMCC +9.26% are due to report third-quarter results in coming days. Like the second quarter, the two could again show a profit before dividends they pay to the government.
Meanwhile, a recent report from their overseer, the Federal Housing Finance Agency, said the net amount of assistance Fannie and Freddie have drawn from the government, currently at about $142 billion, could drop to between $67 billion and $132 billion by the end of 2015.
Anything toward the lower end would ease pressure to deal with the two. In fact, Tuesday’s victor looks more likely in 2013 to try to ramp up programs to make it easier for underwater homeowners to refinance their mortgages. Trouble is, even if housing looks to be in better shape, the housing-finance market actually is broken. The government still backs more than 90% of new mortgages, leaving taxpayers on the hook. There also has been little progress in devising new structures to lead private capital to again take on residential-housing risk.
The housing status quo has other costs. The mortgage-interest tax deduction makes little sense given the government’s bleak, long-term fiscal outlook. That subsidy may become an issue given the looming “fiscal cliff” and calls for a tax-code overhaul. No doubt this will lead to cries that any cut would nip a housing recovery in the bud.
Yet there will never be a perfect time for that, or for dealing with Fannie and Freddie. Housing markets may appear to be on the mend, but whoever wins the election is likely for some time to leave government as the foundation.
Election Will Keep Real Estate On The Same path
