Speaking of home prices….Zillow released their December Home Price Expectations Survey yesterday, coincident with the release of the Case Shiller home price index. It is a survey of 105 economists conducted by Pulsenomics – and the consensus is that home prices at the national level will rise a bit more than 3% per year over the next 5 years. You can see their consensus outlooks for each of the next years in the graph below. In addition, the graph compares their current outlook to the one they produced back in September and what it shows is that these economists are slightly more optimistic than they were 3 months ago. In particular 2012 is clearly beating their expectations and they are much more optimistic about 2013.

Zillow Chief Economist Dr. Stan Humphries explained the improved outlook as follows:

An organic recovery in the housing market really took hold in the latter half of 2012, and this improvement is echoed in some of the most optimistic price projections we’ve seen in years from this group. Record levels of affordability and an improving overall economic picture have really helped buoy the market and have us well positioned for continued growth, albeit slightly slower, in 2013 and beyond.

Negative Impact If Mortgage Interest Deduction Eliminated/ Reduced

The panel of economists was also asked to weigh in on the impact of potential changes to the mortgage interest deduction by considering three different scenarios ranging from various limitations to outright elimination over time. The conclusions of the panel were summarized by Pulsenomics founder, Terry Loebs, as follows:

If adopted, any measure to limit or repeal the MID will result in distinct price impacts over time and by market segment, and our survey data are consistent with this view. For example, in the event that the maximum MID-eligible mortgage amount is reduced from $1 million to $500,000 and the deduction allowance for second homes is eliminated – an ingredient of the Simpson-Bowles proposal – the majority of respondents expect high-end home prices to fall while U.S. home prices overall experience little or no price impact.

But let’s face it, the impact on housing prices should not be a factor in this debate. The government should not be subsidizing particular industries or lifestyles and anyone receiving these subsidies should be weaned off of them. And if the government wants to really stick it to the “rich” this is the best way I can think of to do it since it will hit them disproportionately. Also, if by chance this weaning should result in lower home prices then at least another government objective is met: affordable housing.