It's not what it used to be as for first-time home buyers owning a home will get you a tax break. Not so much anymore at least not for young buyers! Near record low mortgage rates and a higher standard deduction make it hard for a lot of buyers to qualify, here's why
The standard marital deduction has risen from $1,300 in 1972 to $12,600 today. Meaning that the first $12,600 worth of itemized deductions have no benefit to consumers. A typical first time home buyer financing 95% or less of a median priced U.S home which is around $200,000 pays less than $12,000 in mortgage interest in property taxes annually. That is not enough to hit the itemization level even with other deductions that bring the taxpayer over that limit the tax savings are minimal.
The mortgage interest deduction is one of the largest Federal expenditures at about 70 billion dollars a year but it does very little to boost home ownership because it favors wealthier buyers purchasing more expensive homes. About 77% of benefits went to the homeowners with incomes above $100,000. These are all great numbers about the trade-off about whether or not you should buy or rent and what really pushes you at the moment when you're doing that first time home buying.
Speaking of the wacky effect of low interest rates that don't move, this morning the Wall Street Journal has an article about the impact of negative rates having really weird effects. Over in Europe a Denmark homeowner is getting paid for having a mortgage receiving a quarterly interest payment of $38 from the bank that holds their mortgage because Denmark has had negative interest rates for the past 4 years. So they still have to pay whatever principal was due that month and some fees but the bank is paying them the interest rather than the other way around. It's bizarre, right? Would that be good for a home ownership? Wouldn't that be awesome for all of us if we got paid to own our homes! We aren't really going to see that happen here in the U.S. because the vast majority of mortgages here a fixed rate while that does protect you if interest rates go up. It also hurts you if they go down or they go negative because you're still at that fixed rate. Now are there some people floating with arms that have adjusted lower and lower and lower? Sure, but we don't think if we got into that kind of situation that you would really see much of a surge home ownership because banks are still going to be charging for your money.