Kandahar, I'm not at all sure that interest rates would fall. Interest rates are governed and driven by things other than the fact that mortgage interest is tax deductible.
That is one component of it. The mortgage interest deduction is, in part, a subsidy for mortgage-lending banks. If mortgage interest is tax deductible, that increases the demand for mortgages, which drives up the price (i.e. the interest rate). The banks know that the government will foot part of the bill, and so they can charge more than they otherwise would.
MaggieD said:
You say home prices would fall. I would agree with you. Why would they fall, though? They would fall because there would be less buyers. And because there would be less buyers, there would be less homeowners. Home ownership, rightly or wrongly, has long been an integral part of the American Dream. Should it be? I think so. Buying a home is a way of fixing one's living costs. When one lives in an apartment or other rental property, one is controlled by, and at the whims of, a landlord.
Your costs are far more fixed if you rent than if you own. They are essentially limited to your rent (fixed cost), your renters' insurance (fixed cost), and your utilities (variable cost). These costs are known well in advance, are subject to market forces, and with the exception of utilities typically only change once per year. If you own a home, you have your mortgage (fixed or variable), your home insurance (fixed), your property taxes (fixed), your utilities (variable), the financial cost of repairs/maintenance (variable), the time cost of repairs/maintenance (variable), and the risk that your home will depreciate (variable).
MaggieD said:
Home ownership promotes personal pride.
I see no evidence of this, and even if it's true, subsidizing personal pride isn't worth $130 billion of federal revenue per year when our infrastructure is crumbling, our schools are failing, and we have a huge budget deficit.
MaggieD said:
Encourages having a personal stake in the neighborhood and the schools.
That would be a matter for local governments then. If they think that homeowners are better for their community than renters, they can subsidize the mortgages themselves. I don't see how it's a federal issue since (with few exceptions) people aren't going to pick up and move out of the country as a result.
MaggieD said:
The American Dream of a white picket fence deserves to be there. For all that our government chooses to subsidize, surely home ownership is one of the more worthy.
I can think of a lot better ways to spend $130 billion than subsidizing dreams of white picket fences.