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» VISIT US ONLINE @ DSNEWS.COM SURVEY: MORTGAGE INTEREST TAX DEDUCTION SHOULD BE REPLACED CASE-SHILLER: AUGUST HOME PRICES AT 2-YEAR HIGH The mortgage interest tax deduction has been the subject of debate for some time. While the majority of Americans continue to support a mortgage interest deduction of some kind, a recent poll shows many believe the current deduction should be revised to provide greater relief to middle- and low-income homeowners. About 56 percent of respondents to a survey conducted by the National Low Income Housing Coalition said they support replacing the current mortgage interest tax deduction with an alternative that offers the same percentage deduction to all homeowners without taking income into account. Polling a little more than 1,000 Americans, the survey also found that 63 percent believe tax deductions should only apply to those whose mortgages are $500,000 or less. This idea was set forth by the National Low Income Housing Coalition. The same percentage said the federal government should use savings it would incur from revising the mortgage interest tax deduction to end homelessness. Sixty-nine percent of respondents also said the federal government should offer programs to support affordable rental housing. Fewer respondents, but still a majority at 59 percent, said the federal government should help low-income families pay their rent. The poll was conducted by Belden Russonello Strategies on behalf of the National Low Income Housing Coalition, a major supporter of revising the mortgage interest tax deduction. "It is time to enact reforms that will stop the subsidy of million-dollar houses and use the savings to help middle- and low-income families who need it most," said Sheila Crowley, president and CEO of the National Low Income Housing Coalition. U.S. home prices continued to increase in August as the Case Shiller 20-city composite index increased 0.9 percent to its highest level since September 2010. The 20-city index is up 2.0 percent in the last year. The index rose in 19 of the 20 cities surveyed, falling only in Seattle. Economists were on point with their expectations, forecasting the 20-city index to come in 2.0 percent ahead of August 2011. At 145.87, the index was down 12.9 percent from where it was just before the 2008 presidential election. Case-Shiller's 10-city index also rose 0.9 percent in August, increasing to 158.62, 1.3 percent ahead of August 2011 and the highest level since October 2010. The monthly gain in each index was slower than in July, when the 10-city index went up 1.5 percent and the 20-city index improved 1.6 percent. July saw gains in all 20 index cities. The median price of an existing singlefamily home dropped 1.5 percent in August, according to the National Association of Realtors, but was up 8.0 percent from August 2011. In July, the median price of an existing STAT INSIGHT 572,844 Home repossessions from January through September 2012. Sources: RealtyTrac, Federal Reserve, Equifax By Mark Lieberman, Economist for the Five Star Institute single-family home was up 9.7 percent from one year earlier. Home values play a significant role in the nation's economy following the "wealth effect," which holds that households spend more as perceived wealth increases. Increases in household net worth due to real estate (rather than stock) values have a greater impact on consumption, which is more than 70 percent of gross domestic product. The price gains reported by Case-Shiller were led by a 2.3 percent rise in Detroit; a 1.8 percent increase in both Atlanta and Phoenix; 1.6 percent in Las Vegas; 1.3 percent in Los Angeles; 1.2 percent in Minneapolis; 1.1 percent in Washington, D.C.; and 1.0 percent in both Cleveland and Miami. The year-over-year price improvement in Las Vegas was the first in that city—which had been a poster child for the housing boom—since December 2006. Even with the improvement in August, the 10-city price index is down 29.9 percent from its June 2006 peak, and the 20-city index is down 29.4 percent from its July 2006 high point. CAN THE FED'S QE3 POLICY SAVE THE ECONOMY? As the Federal Reserve launches its QE3 monetary policy, some interpret the plan as a sign Fed Chairman Ben Bernanke has "gone 'all in' on the U.S. housing market" and is clinging to hope the housing market cannot only recover itself, but also restore the entire U.S. economy. This, at least, is the outlook portrayed in a research report released by Global Markets Intelligence (GMI). The research firm suggests the Fed is turning to the housing market "as the last, best hope" for strengthening the overall economy and restoring "healthy self-sustained economic growth." "If QE3 does not work, we don't think it's much of a stretch to conclude that the U.S. financial system and economy is broken," GMI stated, faulting "excess legacy indebtedness and excessive financial regulation" as the culprits. As the Fed purchases $40 billion in mortgage-backed securities each month "for an unspecified but extended period of time," GMI will watch vigilantly for signs of the plan's success. The first sign would be a sharp increase in mortgage applications, the firm's analysts explained. Specifically, GMI will look for the Mortgage Bankers Association's purchase composite index to rise above 200. "If the Fed is successful in supercharging the fledgling recovery in housing, we should see the index exceed 200 in fairly short order, presumably by the end of the first quarter of 2013 at the very latest," GMI said. Following an uptick in applications, GMI would expect to see existing home sales rise, perhaps above the five million mark. While the true outcome of QE3 remains to be seen, GMI suggests the "potential value of housing as a catalyst for growth should not be underestimated." Sustained and measured growth in housing could lead not only to growth in real estate, finance, and construction, but also bring improvement in raw materials and retail markets. GMI, however, remains mindful of the "fiscal cliff," continuing to watch for possible evidence that "political partisanship and expectations for federal sequestration have rendered the Fed impotent in the contemporary socioeconomic climate." 27

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