You just made an argument for a forced-savings program, not for a home mortgage deduction.
Moreover, I think the issue with savings is a service problem, not an impulse control problem. Tax deferred accounts are complicated to figure out for a lot of people and it can be difficult to keep track of for people who don’t do regular, salaried work. I still have 2 or 3 401ks from previous jobs that I haven’t gotten around to rolling over just because coordinating with them and getting the form filled out is a bit of a hassle and it’s an easy thing to procrastinate on. And I have the advantage of actually knowing how this stuff works!
If it was as easy as just having a chunk of my salary taken out on a regular basis, and made opt-out rather than opt-in, you'd get a way higher participation rate.
You'd leave in place the break for the majority of middle-income wealth builders, close yet another loophole for the wealthy, and enrich lower income renters.
It would never ever happen with our current political climate (money is influence), but I feel like it would make sense. As the article mentions, a complete repeal of MID would be even more difficult.
Check this: http://www.paragon-re.com/3_Recessions_2_Bubbles_and_a_Baby
To me this long term trend is teling me that the drops are only temporary and contained for about 3-5 years. Sure if you buy at the peak, there is a chance that you might owe money to a bank for something you do not own (negative equity that is), but it will bounce back.
unless, you know, detroit thing happens, or that california defaults (because of pension crisis, etc), or it raises taxes too much.
i am not a fortune teller, obviously, but bay area has been its own bubble for quite a while now.
If prices vastly outstrip the ability of ordinary people to afford it, you're detached from reality.
[1] https://www.irs.gov/retirement-plans/plan-participant-employ...
We do have options though. Those will vest into millions... one day.... any day now....
From /r/personalfinance: https://i.imgur.com/fb7Dtmh.png
What do you mean by the "little guy/gal"?
It's true that the 2008 financial crisis only resulted in one banker going to jail, and he was not an executive. It's also true that the crisis only resulted in one bank getting indicted for criminal charges, and it was a small family-run bank in Chinatown with a stellar mortgage default rate (0.5%), and which reported activity that they discovered themselves, not a (metonymical) Wall Street conglomerate[0].
But if you're referring to people who own 401(k) accounts or receive pension funds, that's exactly who was bailed out. "Let the banks fail" is a common refrain, except what that literally translates to is letting people's retirement funds get wiped out due to impropriety that they weren't involved with at all.
[0] They identified an employee who had falsified loan applications, and reported it to regulators after firing the employee. They were acquired of all charges brought to trial, and the prosecutors themselves later requested that the charges be dismissed, because they realized how ridiculous they were.
In the 1930s, the bank stockholders were wiped out (equity set to zero), and they started over. In the 2008 crisis, bank stockholders were "bailed out". The value of their shares did not go to zero. The people who owned the bank before still owned it after. That is the difference between 401(k) accounts taking a 30% haircut and the bank stockholders retaining ownership of insolvent banks.
When the media talks about "too big to fail", they mean "too big to have stockholders wiped out and have the government recapitalize them". Supposedly it sounds too much like socialism. It is really regulatory capture at its finest.
The biggest benefit of 401Ks comes from your company provided match, because that's free money and instant ROI.
How old are you?
You're probably thinking of the Great Depression.
Sorry to tell you now but this is the wrong way of looking at it.
The 401k will save you from paying tax the next 50 years. The first few years you might be a little behind but its worth it because later you'll have your contributions throttled. (assuming you can pay that much in)
Worse it promotes moving to areas with the maximum possible jobs which destroys smaller towns and city's while creating even worse congestion.
Yep. But I still bought anyways, even though houses are what I consider "bad investments" if looking at them in the abstract:
* high transaction costs * illiquid * concentrated * requires maintenance ...
But the calculation was that since the local market and job market for me are amazingly hot right now, it'd transfer my variable costs into fixed costs and be a cash transaction.
Still worth it in some cases.
My spouse and I have done a ton of work on it, don't mind the maintenance issues, and we still get a kick out of just pointing to things and saying "that's ours!" (Okay, well... it's most the bank's. But still.)
I think "I'm sick of renting someone else's house" is a very non-negligible factor that's not often brought up in cost/benefit analyses like these.
Either end the mortgage interest deduction or allow rent to be deducted (at least in part).
Also, we could cap the home mortgage interest deduction, and it would still benefit the poor, but not the rich.
(In overheated markets, 'rent+invest' can be better than 'own', but a full accounting needs to consider the cost of a living arrangement.)
If you're married filing jointly, your standard deduction is already $12000 -- which is more than you would pay in interest the first year on a $300,000 mortgage at 4% interest.
The median price of a home is $188,00 (http://m.huffpost.com/us/entry/4957604).
As rents were cheaper in the previous decades compared to the monthly income, this mechanism would not be necessary. But basically burning half of ones income in order to live somewhere must return some value or around the world not only in the US we will have very poor renters and very rich home owners. This can even lead to even more radical political movements.
The market would price this in, and then renters would just pay more for that right. Why not just leave the system as-is and let them buy if they choose?
OR there would be people getting kicked out of their rentals in order to avoid the "option" to buy becoming active, and then reactive legislation, and then ... a huge spiral of fights over market distortions that layer on top of each other.
> this is of course a regulatory burden
One person's mere "regulatory burden" might be another's "theft at gunpoint."
I'd be interested in seeing a careful study of the degree to which the mortgage interest deduction actually plays a significant role in home ownership rates. But at least based on this article, it sounds like it's noticeably less significant than I'd thought.
The question is whether this tax deduction actually promotes what you want. I think that the article casts a huge amount of doubt that it would.
So many of my coworkers do not contribute to their 401K at all, which is literally just leaving free money on the table.
The problem, as I see it, is FNMA and FDMC. Those entities, whose purpose was to ensure that a market for residential mortgages would exist, is now actually just engines for inflating housing prices and commoditizing low-risk real estate investment. They are the means by which an investor may become an absentee landlord without assuming any of the normal responsibilities of property management. Ordinary people volunteer to maintain and improve the investment properties, because they are offered the illusion of ownership.
A wise and shrewd financial plan can certainly make the mortgage system work in one's favor, to produce genuine ownership, but for the most part, it has done little more than create another class of resident somewhere between owner and renter: the mortgage-payer.
Having been both renter and mortgage-payer, and having seen some of the ugly hidden details of the US housing market, I do not recommend that anyone in the US software industry actually choose live in a mortgaged home except in the following places: New York City, Chicago, Washington DC, Austin, Seattle, Boston, Portland, Phoenix, Denver. (California properties near LA and SF are simply too overvalued, in my opinion.) Nowhere else has a sufficiently dense industry to ensure that one can work an entire career in the same place without sacrificing higher regular pay as an alternative to moving.
I would still like to actually own my own home one day, but as parent poster mentioned, I have done the math, and determined that I would be better off renting and saving, rather than borrowing and paying. And one of the major reasons why is that I have little sense of certainty with respect to where I will be living in five years, and that is roughly the absolute minimum timespan required before taking a mortgage can become less expensive for me than renting. Another is that any event likely to force me to move to find work is also likely to depress local property values. I would prefer to park my net worth in an asset that rises in value when people like me lose their jobs, and in assets that I am not forced to sell when I move, lest they become a financial burden. The money I save can be used to buy a retirement home, after I am done worrying about the consequences of place involved in moving around or staying put.
The problem with that mass-market forced-savings program is that dumping all your retirement funds into just one depreciating asset is just a horrible way to retain value. The only reason it works at all is because it forces people to literally sit on their nest egg. They must be aware and cognizant of everything happening to it, and actively defend against any threats to it. It forces people to be active investors in a market they are familiar with, because they live in their own neighborhoods.
[1] Time to get on my customary soapbox: spend less, save more! You'll be happier today, and much happier in the future.
[2] Back on the soapbox: If you're an American making a professional salary, have no debt and are not maxing out your IRA and 401(k) contributions, there will be a moment in your future when you do the retrospective calculation on how much more money you would have if you had done so and be very sad. :) Minimize regret, and save more today!