Blame the Debt Crisis for Dragging Down Housing

As each day passes and another "deal" to raise the debt ceiling falls apart, my sense of outrage grows. I'm frustrated that many of our elected representatives, including President Obama, are worried more about their next election bids than the best interests of the nation.

Yes, I believe the Democrats, Republicans, Conservatives, and Tea Party proponents will eventually broker a deal. While there's enough fault to place at the feet of both President Obama and Congressional leaders, I doubt they'll ultimately allow the US to default, which will provoke a downgrade from US credit agencies that could cause interest rates to soar and the economy to go into free-fall.

Still, I'm annoyed at the drama, and I think the uncertainty this prolonged debate has created could have been avoided.

This nation is rooted in the idea of compromise. In fact, compromise is what kept the practice of slavery alive for nearly 100 years. Slavery only ended when ideologies regarding state's rights and industrialization clashed enough to cause the Civil War in 1861, which resulted in the deaths of more than 600,000 Americans over the next four years.

I'd like to think we've learned the merits of compromise. But we also seem willing to embrace uncertainty, the enemy of investment, and fear of consumers. Uncertainty makes consumers skittish and worried; it replaces rational judgment with panic-induced decision-making.

In short, we lose our already-limited abilities to predict the future -- which exacerbates our jitters and intensifies our concerns.

Take the recommendations from the Gang of Six -- Democrats Dick Durbin of Illinois, Kent Conrad of North Dakota, and Mark Warner of Virginia, and Republicans Tom Coburn of Oklahoma, Saxby Chambliss of Georgia, and Mike Crapo of Idaho. The six want to simplify the tax code and include some of the recommendations from last year's Bowles-Simpson report, which proposed reduced deductions for mortgage interest, healthcare, and charitable contributions.

The National Association of Realtors and other housing advocacy groups are adamantly opposed to any revision to the mortgage interest deduction. Purchases of new US homes fell in June, according to data released yesterday; it's proof that housing is still languishing two years into the so-called economic recovery.

The S&P/Case-Shiller Indices for the US housing market rose for the second consecutive month, gaining about 1% in most cities in May on a non-seasonally adjusted basis. But on a seasonally-adjusted basis, "the month-on-month change of prices has been pretty much flat for two months."

Housing is far from healthy.

Lawrence Yun, NAR chief economist, said "a variety of issues are weighing on the market," including an unusual spike in contract cancellations. About 16% of sales contracts were cancelled in June, up from 4% in May, NAR statistics show.

Yun said tight credit, low appraisals, and "economic uncertainty and the federal budget debacle" are causing both consumers and lenders to hesitate.

Well, imagine that! How else do you think prospective buyers might feel with the traditional deductions -- the drivers of homeownership -- on the line?

A lot of homeowners are underwater with their housing investments, including me. Many fellow homeowners I've talked with tell me losing the mortgage interest deduction will be the last straw: It will cause them to hand the keys to their homes back to the mortgage lenders.

This is a very small and unscientific survey to say the least, but I think there will be others across the country who will view any changes to the mortgage interest deduction as the beginning of the dismantling of a tax policy that favors homeownership and causes us to redefine what, to many, has been "the American Dream."

The coming days will be riveting drama featuring the introduction of new plans, as well as back-and-forth and, no doubt, 11th-hour negotiations. The devil will be in the details of the final deal -- the specifics of what tax loopholes that will be addressed, the amount of funding cuts, the amount of new revenues (if any), and the term of the deal.

If you thought the debate has been fierce up to now, wait until housing groups, not-for-profits, research and health care groups, and other affected industries descend on Washington to fight for their respective interests. It will be a battle royal that will determine the short- and long-term fates of some key industry sectors.

While the debt ceiling debate goes on for another week, uncertainty will prevail on Main Street and Wall Street. One or two good things could come out of all this, however.

It should at least distract some of us from the latest gossip about Kim Kardashian's wedding, or the whereabouts of Casey Anthony.