Captives in Our Homes

Still though savings is savings dont forget about the money you can save from refinancing and the tax savings that Obama wants included for that as well. Check http://www.refinancingcondo.com for more information

Also note that the package says: 8.000,- OR 10 % of the homes value wichever is less. not sure if some houses has a value above 80.000,-. And don't forget: its just for the 2008 and 2009 taxes.

How does ownership impair mobility? In normal times, you can sell your house anytime you want; if you rent, you are bound by the timeline of a lease.
In these unusually deflationary times, homeowners may want to hold on to their homes to wait for re-inflation of real-estate values. But they don't have to. They will be buying from the same deflated market they are selling to.
Prices may be higher in a region with better employment prospects, but that will always be the case.

Besides what Mark said, leases often have hardship outs so it is easier to move if one loses a job or is involuntarily transferred. Otherwise, you probably won't owe more than three months rent if you have to move immediately voluntarily.

In normal times, you can sell your house any time you want? Paul, I have to suspect that either you haven't been through this process, or you're wealthy enough to consider it a minor hassle, but.... it ain't blueberry pancakes. You have to own it for a couple years to make back the realtor's and closing costs, even in normal times. And don't forget, you have to buy another one, an experience much like walking a distance over broken glass. For first time owners it's worse - they've just come up with a big pile of money and it'll be years before they have another one. In a deflationary market, many years. Bottom line, nobody wants to switch homes more than once in three years, and a lot of people CAN'T, and that's much less mobility than the renting market offers - at worst, you have to pay an extra month's rent to break a lease, and that's if you have a lease; not everyone does. Your second comment is only correct if the mortgage is above water, and for the first-time home buyers we're talking about, that's unlikely to be the case. They're well and truly stuck - if they are forced to sell, they can take little comfort from the fact that they're buying in the same depressed market: the bank's going to want the difference between the sale proceeds and the note balance TOMORROW, thus soaking up any savings the hapless Ownership Societarians had put together.

I think AnotherBen hints at the root of this: even for those with an above-water mortgage, home ownership decreases worker mobility and therefore worker bargaining power. Anything that reduces worker bargaining power will tend to reduce wages. Thus, home ownership is good for employers. You could almost view the mortage deduction as a subsidy - but in any event there were clearly powerful economic forces behind its introduction and maintenance. As in so many other areas, the Bush presidency took this to its cynical extreme, and called it the 'ownership society'. He bragged, several years ago, about how he was encouraging banks to lend aggressively to first-time home buyers. You can still argue, I guess, about whether the Great Society was a good or a bad thing. But I think the argument about the Ownership Society is over.

The mortgage interest rate deduction also tends to favor the rich. Now aside from the obvious problem of subsidies to the rich, this also means that (aside from Manhattan), the rich tend to own rather than rent. Which means that the population of renters is not only a minority, but also strongly skewed toward the less-well-off. They're not as well represented in the political process, so protections for renters are weak, while subsidies for homeowners only get bigger. And renting is looked down upon socially as well. And you get a feedback loop.

Writing off the interest on a mortgage never bothered the economy before. Getting a mortgage with little or no down payment on more home than one can afford with no proof of income/employment? Bad. Taking one's credit card bills and paying them off with a refinanced mortgage? Bad. Let's not forget all of the "flippers" out there, many of whom abandoned their 2nd or 3rd home after it's value sunk below the note on it.
We were all bombarded with ads on all forms of media for all types of loans for years. Many folks took the opportunity, rolled the dice and we are all paying for it!

It does, however, decrease worker mobility. Also, it causes the prices of homes to rise, is regressive, and causes people to invest as little as possible in their homes since it is the cheapest thing to take money out of. In the context of the current crisis, it is one of the many ingredients that created the mess. The fact that it builds some capital should be enough of an advantage over renting; it doesn't need the added bonus of the interest deduction.

I agree. The worst subsidy is, I think, the home mortgage interest deduction, but I can't figure out a way to eliminate the home mortgage interest deduction without exacerbating the problem of people being stuck with homes they can't sell. Future buyers would not be as willing to pay as much for a residence as current owner did. You could say that the interest deduction is good for the mortgage of the current owner. They still wouldn't be able to sell easily though, since the market price will have declined. I am not sure that a tax credit or something similar could put them in the same position as they were in before eliminating the deduction, but allow them to readjust downwards the price they were willing to accept if they wished to sell the house.