(Editor’s note: This article was written just prior to the Fiscal Cliff agreement that was reached by the House and Senate on January 1, 2013)

By Fred Arnold

As Washington engages in a standoff over budgetary proposals to avert the fiscal cliff, several industry professionals and associations are calling upon lawmakers to avoid slaughtering what was once thought to be a sacred cow: the mortgage interest tax deduction (MID).  Introduced in 1913, the MID allows homeowners to deduct mortgage interest attributable to primary residence and second-home debt totaling $1 million and interest paid on home equity debt up to $100,000. While many housing professionals view the deduction as a break for homeowners and an incentive for others to purchase their own homes.

Outside of the never-ending fiscal cliff conversations and reports, the news leading the way in the markets is housing.  More reports on the housing recovery keep coming and there is no end in sight to the consistent improvement, unless of course the fiscal cliff derails the housing recovery.  (Sorry I just had to throw that in there)

On Wednesday morning this week the Case-Shiller Home Price Index indicated that home prices continue to benefit from low mortgage rates.  The report for its 20-city index gained 0.7 percent in October, following a 0.4 percent increase the prior month.  To add even more strength to the report, the index is up 4.3% from a year ago.

The bottom line is that the housing sector is slowing regaining health and homeowners are beginning to regain housing wealth lost over the past recession and early recovery months.

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The new home market continues to bolster the sentiment that housing is improving in that November’s sales rose 4.4 percent.  New home sales, which started the year near rather slow, have been gradually building up momentum throughout the year. Scarcity of supply of available properties is a big factor in the home sales market, which is currently at a 4.7-month sales rate.  Additionally when you compare where we are today from a year ago, the new home sale market is up 14.9 percent for the median price and 19.9 percent for the average price.

Friday at 10:00AM, the report on pending home sales will be released.  The consensus from analysts is that the number will be quite strong.  Some experts believe that we may see an increase as high as 6% from the prior month however; the average prediction seems to be in the area of 4.5%.  Last month we saw an increase of 5.2% so any number in that area will continue to bolster the discussion that housing is truly on the mend.

Mortgage rates continue to remain at historic low levels.  Last week we did experience a slight increase in rates due more in part that investors were beginning to believe that our elected officials would come to an agreement to avoid the fiscal cliff. However, this week is a different story.  Many investors now think that we will not have a budget deal in place by January 1, which will ultimately hurt the economy, at least temporarily until Congress and the White House strike a deal.

This week’s market reports will take a back seat to what happens with the fiscal cliff negotiations:

 •Wednesday January 2nd – MBA Applications, FOMC Minutes and ISM Manufacturing Index

 •Thursday January 3rd – First Time Jobless Claims and the ADP Employment Report

 •Friday January 4th – National Unemployment

As your mortgage professional, I am happy to assist you with any information you may need regarding mortgage or real estate information.  I welcome the opportunity to serve you in any way I possibly can. Give me a call at (661) 284-1150 x 109 or go to http://fredarnold.com for more information.