[quote=CONCHO]I think if they really phased the deduction out, home prices would drop drastically. Assuming cash-rich buyers pick these houses up at record low prices, what are they going to do with them? Rent them out! Bingo, lots more rental properties on the market will push rental prices down along with home prices.

I think it will be deflationary all around in housing, both in rent cost as well as home prices. People would moonwalk in huge numbers right into similar rentals discounted 30% also. Or, even better, they can just stop paying their mortgage, save the cash, wait 18 months for the foreclosure process to complete and then plop down cash for one of the new cheap houses!

In an immoral society, those with the most morals are destroyed first.[/quote]
Again, I don’t think everyone would walk. Only those who depend on the deduction to make their mortgage comparable to rent. All the people who are paying less for mortgage than rent of similar house wouldn’t walk. I know I wouldn’t. All the people I know who are near or at retirement and own anywhere between $20k-100k left on their SFR wouldn’t walk either. Since their mortgage are currently well < $1k/month. They can't even rent a 1/1 apartment for that monthly payment. I can see a squish down but I don't see price dropping drastically bellow rent. If it does, you'll see many more investors jumping in to push up prices. I also don't think rent will take a whack either. Rent didn't drop 30-50% from 2005 like housing price.