The purchase of a home has many benefits in the economy. The way the strength of the economy as a whole can affect the marginal benefits and the marginal costs associated with the purchase of a home are interest rates and home values. If the economy is good the value of homes typically increase, and interest rates will be driven by prime rate which is set by the Feds. When the rate is low people want to buy or refinance, but when the economy is poor there are fewer buyers because there job market is tough and banks will slow down lending by making it tougher for people with credit problems to buy a home.
The removal of the tax deduction for mortgage interest would hurt the housing market because people that were on the fence about borrowing would not borrow if the hassle to own offered no perceived benefits anymore. The cost of homeownership increases, and there would be fewer buyers because of the cost increase and the devaluing affect on homes created with a decline in buyers. This could cause people to lose money on a home sale, or even be forced to walk away from their home because they can’t sell it.
Other changes in government spending and taxes that would affect my decision to purchase a home because I would have fewer dollars to spend. With fewer dollars available lifestyles are negatively affected and therefore changes must be made to buying habits, entertainment, repairs to homes essentials, etc.