The National Association of Realtors this week launched an advertising campaign warning that home values could drop significantly if the recommendations of a federal tax reform panel to reduce the mortgage interest deduction were implemented.

“All homeowners will suffer if this policy is enacted, whether they take advantage of the mortgage interest deduction or not,” said Thomas M. Stevens, NAR president and senior vice president of NRT Inc. “Reducing the mortgage interest deduction would drive down home values and have a devastating effect on the housing market as well as the nation’s economy.”

The ad uses a picture of a typical house inside a pie chart, with 15 percent of the home sliced off in red to illustrate the percentage loss to the homeowners if the mortgage interest deduction were converted into a tax credit. “More than 1.2 million Realtors urge the administration and Congress to say ‘no’ to undermining this important incentive for homeowners,” the print ad states. The ad is scheduled to run in Roll Call, The Hill, The Washington Times and The Weekly Standard this week and next, the Realtor association reported.

A 15 percent drop in home values would translate into about a $20,000 to $30,000 reduction in housing equity for a typical homeowner. Eliminating the mortgage interest deduction would hurt middle-income families the most. According to IRS tax return data from 2003, 52 percent of the families who claim the mortgage interest deduction have household incomes between $60,000 and $200,000.

President Bush’s Advisory Panel on Federal Tax Reform recently recommended that Congress convert the mortgage interest deduction to a tax credit; repeal the deduction for state and local taxes, including property taxes; and reduce the $1 million cap on the size of the mortgage for which interest could be deducted to the regional Federal Housing Administration loan limits, which range from a little over $170,000 to almost $470,000 in high cost areas.

The tax panel also recommended eliminating the tax deduction for second homes, which would impact at least 5 percent of the nation’s Gross Domestic Product (GDP), the trade group reported. The residential housing sector accounts for about 15 percent of the nation’s GDP. Second homes accounted for 36 percent of all home sales last year.

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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