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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Tradelite who wrote (27966)	3/10/2005 12:57:02 PM
From: anachronist	Respond to of 306849

>Well, one reason might be that the homeowner is in a high tax >bracket and will benefit greatly from the mortgage interest >deduction. That is a statement that I hear a lot, and most people just take it as gospel. At face value, it makes no sense. Why would I want to pay $1 in interest to a bank to get 33 cents back from the government? What people really mean when they say this is that the mortgage interest deduction lowers your housing payment by the amount of that your taxes are decreased. True, but does that actually end up saving you money? No, at least not in areas that have seen significant price appreciation. My case in point, I am renting a 2 bedroom bungalo with a yard in Los Angeles for $1900 a month. Given my income, marital status, property tax level, this corresponds to the cost of about a $380,000 loan and a $76,000 down payment. The problem is I cannot get an equivalent property for $456,000. Equivalent properties in my area are roughly $550,000 to $800,000, with a median of $627,000. This means that people are not buying homes to live in, because they could rent a similar property for less money. They are not buying homes for the "tax advantage" because there is none. They are simply buying homes becauseit is a highly leveraged asset that they expect will increase at double digit percentages per year.