The Biden admin’s housing tax credit proposals may not budge golden handcuffs
Dark Brandon, real-estate agent… President Biden’s proposed a slew of initiatives targeting America’s housing-affordability crisis. Included: temporary $10K tax credits geared toward first-time home buyers and current homeowners looking to sell their starter homes. Mortgage rates have more than doubled since Biden took office, contributing to Americans’ bummed-out economic mood. Here’s what POTUS hopes could help:
For first-time buyers: a $10K tax credit spread over two years — effectively the same as a 1.5-percentage-point reduction in the mortgage rate for a $415K home (FYI: that’s the median US price).
For starter-home sellers: a $10K credit for selling a home below their county’s median price. To limit corporate buying (think: hedge-fund neighbors), the credit would count toward sales only to folks who plan on living in the home.
Other proposals: a $20B grant fund for building rental housing and a $37B expansion of the low-income housing tax credit.
Been to a housewarming party lately?... Last year was the least affordable on record for buying a home in America. Home prices have climbed 27% since the start of the pandemic (hitting a record high in December), mortgage rates are close to multi-decade highs, and folks need six-figure incomes to comfortably afford a house (up from $59K prepandemic). Since 2021, the typical monthly mortgage payment for a median-priced home has jumped by $800. Another issue: low supply. People who snapped up digs during the low-interest era don’t want to give up those sweet rates.
Golden handcuffs require golden keys… and it’s unlikely that the White House has ’em. The average rate on all outstanding US mortgage debt is 3.8% — significantly below the current ~7% rate on a 30-year mortgage. Low rates are golden cuffs that homeowners may struggle to part with, even with a $10K incentive to sell. Meanwhile, wannabe buyers are sitting on their hands waiting for the Fed to lower rates.