I. The Dallas Fed President Is Very Concerned About Inflation – Suggesting That the Fed Increase Rates to Fend Off Inflation.
But today’s inflation is mostly due to high oil prices.
So, Barry Habib wondered today how an increase in the Fed Funds Rate will bring down oil prices – other than by slowing down the economy to thwart demand.
But – analysts and economists like Judy Shelton and Steve Forbes repeatedly explain that economic growth does not cause inflation, as long as the growth comes from productivity (rather than government spending).
So, slowing growth to fend off inflation caused by oil prices would simply hurt Americans – for no reason (something the Fed is very good at).
The only productive thing the Fed can do to fend off today’s inflation is drill for oil. Or, barring that, hopefully, they do nothing.
II. Massive 2018 Tax Cut Was Very Painful For The Mortgage Industry!
A. When renters paying $3,500 per month in rent used to come to us to get pre-approved for a $750,000 home, they’d get nervous when we told them their total housing payment would be $5,000 per month.
We’d then assuage them with an email outlining their tax benefits and explaining that they would save about $10,000 per year in income taxes.
That made their net effective payment only $4,200 per month (after accounting for tax savings) – with the added benefits of building equity and owning a home of their own.
B. But – that changed when Trump signed his nasty tax cut in 2018.
What Trump’s 2018 tax bill did was to increase the standard income tax deduction for a married couple to $24,000 from only $12,700 in 2017.
This greatly decreased the tax benefits borrowers would get from buying a home. And – it pretty much eliminated tax benefits for borrowers buying less expensive homes, e.g., under $350,000.
As a result, mortgage lenders (and agents) had to lighten up on their “Woohoo, don’t forget about your tax benefits” pitch they made with every pre-approval.
As a quick reminder, the tax benefits from owning a home come from “itemizing” the interest and property taxes on tax returns – and then deducting those amounts from total income before calculating income taxes owed.
So, total interest and property taxes need to EXCEED the “standard deduction” amount for there to be tax benefits from owning a home.
And even when interest and property taxes do exceed the standard deduction amount (a whopping $32,200 in 2026), the benefits only come from the amount by which interest and property taxes exceed the standard deduction.
C. Tax benefits should still be considered, though, as they are very real above certain price points.
Assume a couple making $225,000 is buying a home in TX for $750,000 with 10% down and a 6.5% interest rate.
That couple’s total interest and property tax expense will be over $60,000, well over the $32,200 standard tax deduction.
That couple will see about $5,500 of additional annual tax savings after they buy (about $450 per month).
So yes, they should definitely subtract $450 from their payment to arrive at their “net effective after-tax payment” – to help assuage the payment shock they might have if they’re moving up from renting.
In CA – where there is a hefty state income tax, the tax benefits are larger – at about $6,500 per year – or $540 per month.
And – as purchase prices get larger, the tax benefits increase that much more because total interest and property tax expenses exceed standard deductions by that much more.
D. The Good Part: Claude can estimate the benefits in about 5 seconds!
This is why tax benefits should always be touted for purchases over $400,000: AI can estimate them in about 5 seconds!
Just give your favorite AI the parameters (price, down payment %, interest rate, and property tax rate) and ask it to estimate tax benefits from buying.
And boom… you’ll get an accurate enough estimate to run with.
And for prices above $700,000, there is enough “woohoo” still to assuage many a buyer all too concerned about payment shock.
