'Difficult Choices' In 'Uncharted Territory': Updated

Some housing related stories from Washington. "Since Congress neglected to index the AMT for inflation, some 40 million mostly middle-class Americans in states with the highest costs of living, largely on the coasts, are expected to get clobbered by it by 2010. The loss of the AMT would leave a huge fiscal hole. The tax is forecast to bring in $600 billion to $1.2 trillion during the next decade." "'How do we pay for it?' said John Breaux, vice chairman of the panel. 'It always brings up difficult choices.' Real-estate tax breaks are a huge subsidy for one of the most vibrant sectors of the U.S. economy. This triple dip costs the U.S. Treasury about $110 billion a year." "If the tax panel's proposal to curtail mortgage deductions becomes law, there would be 'an increase in financing costs and a decline in prices, particularly at the high end,' said Doug Duncan, chief economist for the MBA." "If you subscribe to the idea that home subsidies are contributing to overheated housing prices, then trimming those breaks would raise the total cost of homeownership and hit the priciest markets the hardest." "Is it fair to say that the properties with the highest levels of debt and taxes might decline in value by one-third? No one knows for sure, yet home buyers in high-tax states like California, Massachusetts, New Jersey and New York would certainly hesitate before trading up or building more-expensive homes." "The Oct. 19 report on home construction is also expected to show that permits, considered an indicator of future building, dropped to an annual pace of 2.071 million, the fewest since May. An index of builder optimism probably dropped to 64 this month, the lowest since June 2003, a report from the National Association of Home Builders on Oct. 18 is expected to show. 'There has been some spotty signs of a cooling in the broader housing market,' said Joseph Abate, a senior economist at Lehman Brothers Inc." And Reuters has these statements from Freddie Mac's CEO. "Richard Syron on Monday said Congress should not try to restrict the size of the company's investment portfolio amid growing concern about the U.S. housing market and economic uncertainty following Hurricane Katrina." "'To be blunt, this is a particularly unwise and dicey time to mess with success and tamper with the most liquid and productive housing finance system in history,' Syron said. 'After all, this is an uncertain period, for our broader economy as well as the long housing boom. New inflationary pressures, job losses, energy and transportation disruptions, housing needs, you name it, we're in uncharted territory here,' Syron said." Update: The NAR president had this to say, "We were startled that the panel would even consider reducing that cap,' Mansell stated. The 'lack of clarity' by the panel, Mansell also stated, 'is confusing to us, to our members and, most of all, to consumers. It is unwise to create uncertainty of that magnitude in any marketplace, much less in a high-priced, active but delicate housing market.'" "Mansell also stated in the letter that the very suggestion of a decrease in homeownership-related tax benefits is harming the housing market. 'The public may be misconstruing the news reports, but the fact remains that the news reports and public perception are already chilling some parts of the marketplace, particularly in high-cost areas,' he wrote. 'The Panelists must understand that limiting or eliminating tax benefits will have an adverse impact on housing markets and the value of housing.'"