John Burns Real Estate Consulting said in a report Friday that government intervention is hurting the housing market, and the firm is growing more concerned that lawmakers will reduce the cap on mortgage interest rates that qualify for tax deductions "significantly." While John Burns graded the overall indicators of the economy in positive territory, such as gross domestic product, personal income growth and even employment, housing continues to remain weak as demand is vacant and distressed sales will continue to pressure pricing. Big policy shifts from Congress are in store for 2011, according to the report. "While big curveballs could be thrown at the housing business, the most likely scenario is that government intervention will make homes slightly harder to sell over the next few years," according to the report. When a commission was appointed by President Obama to overhaul the tax system and reduce the national debt, it came back earlier in November with an option to reduce the mortgage interest deduction, one of the primary incentives for owning a home. The Mortgage Bankers Association and the National Association of Realtors immediately recoiled at the idea, but John Burns said it was unlikely Congress would act until now. "We have been saying that Congress won’t mess with the interest rate deduction, except maybe to drop the cap below $1,000,000," the report said. "We are becoming more concerned that the cap might be lowered significantly. A drastic decline in the cap, or a phased in decline, would impact the move-up builders and a minority of expensive states dramatically." With other reform to the government-sponsored enterprises and mortgage underwriting standards up for review in 2011, John Burns highlighted the impact Congress can have on housing. "There is plenty of short-term risk ahead. Focus on good locations where people want to live, and plan for having to sell homes to higher credit quality buyers. Stay more informed than ever because surprise announcements could impact consumer confidence and sales positively or negatively," the report said. "In turn, that could dramatically affect home buying sales, volume and pricing." Write to Jon Prior.