U.S. home ownership is declining and with foreclosures in the pipeline racing forward, this trend will accelerate in the coming months.  This more precipitous drop should slow to a stead trend of declining ownership for the remainder of the decade and possibly beyond.  This trend is going to effect homeownership benefits and regulations.

When the nation sees changes in demographic lines political fallout is not far behind.  In this case, fewer home owners means less support for the home interest write off.  There are proposal to reduce the write off to as low as $417,000 or thereabouts.  I don’t think this is likely to prevail.  In my estimation, the first home mortgage is likely safe.  However, if not, the worst case is limiting the write off to $750,000.

On the other hand the write off for second homes is at risk and is likely to become a victim of this crisis eventually.  While many  won’t be happy, this is likely a positive event for first home values and for most consumers.  The  reason this is the case is the economic effects are likely the following.  Vacation housing values will fall sharply and the immediate impact will be a negative impact on all home values.  After this effect fades, with homeowners / buyers having no incentive to purchase a second home, primary home values basic value will rise and related industries will gain long term momentum because consumers will be prone to invest more in their primary homes.  In effect, the cities and communities where these consumers live will benefit.

For investors, after the vacation home areas suffer the ill effects of this event.  Values will settle at a lower level.  Investors will become the principal owners.  Moreover, access to these areas will be enhanced by the lower cost point investor business driven goals.  So, while values will fall vacation / get away attraction will not be impacted.  Investors placing capital in these areas should benefit from solid sustained demand for the product.

Summing up, eliminating the second home mortgage write off should result in better allocation of capital, improved home community market fundamentals for housing values, and strong investment conditions for the new owners of the vacation product.

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