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Biden's Proposed Homebuyer Tax Credit: Challenges and Opportunities
Mar 11, 2024
Biden's Proposed Homebuyer Tax Credit: Challenges and Opportunities San Francisco
By   Internet
  • City News
  • US Housing Market
  • Housing Supply
  • Housing Costs
  • US Real Estate Market
Abstract: President Joe Biden recently proposed a tax credit of $400 per month for homebuyers in his recent State of the Union address, aiming to support those looking to purchase homes. While this proposal offers hope for many, some experts express concerns about its potential to drive up home prices.

President Biden plans to provide a $400 monthly tax credit for first-time and repeat homebuyers over the next two years. The Democratic administration estimates that this measure will benefit over 3.5 million middle-class families.

Additionally, Biden plans to offer a $10,000 incentive for homeowners selling their primary residences to encourage the release of more housing inventory. He stated, "I understand how important housing costs are to people." He also mentioned that if inflation continues to decrease, mortgage rates will also decrease. Although the Federal Reserve has acknowledged this, he is not waiting idly.

While homebuyers welcome this proposal, some real estate experts worry that the approximately $20,000 tax rebate could lead to price increases. This is because, in cases of severe housing shortages, these incentive measures may stimulate more buyers to enter the market.

In a situation of high demand and low supply, home prices often rise, leading to more bidding wars, offers exceeding asking prices, and abandoning emergency measures.

Furthermore, these proposals have not yet received congressional approval and may face difficult struggles.

Danielle Hale, Chief Economist at Realtor.com®, believes the intent of these proposals is good, aiming to address the housing supply problem more than the demand problem. She says, "In the best-case scenario, these tax relief policies will give builders enough confidence to continue building homes, increasing supply." However, she points out that if supply does not increase, tax relief could lead to more buyers entering the market without a corresponding increase in housing supply, thus driving up prices.

According to her, the typical homebuyer's monthly mortgage payment is currently about $2,100, excluding property taxes, home insurance, and homeowner association fees. A $400 monthly rebate would cover nearly one-fifth of the cost.

Biden's Proposed Homebuyer Tax Credit: Challenges and Opportunities

Bloomberg via Getty Images

Ken Johnson, a real estate economist at Florida Atlantic University in Boca Raton, bluntly states, "The housing market is on fire, and these proposals are throwing gasoline on it." He is very concerned that this will lead to price increases and notes that these economic stimuli are effectively raising prices for consumers.

Can Biden increase the number of homes for sale? To increase housing supply, Biden also calls on Congress to provide a $10,000 tax credit for middle-class homeowners selling their first homes. This will apply to homes sold to other owner-occupiers and priced below the county median home price.

The White House estimates that this will help nearly 3 million families. Johnson believes this may help increase new inventory to some extent.

However, Ed Pinto, Co-Director of the Housing Center at the conservative think tank American Enterprise Institute, points out that the $10,000 incentive for sellers may not be enough to shake those homeowners who are essentially "locked" into their homes due to low mortgage rates. These homeowners may be unwilling to sell because doing so would mean losing their low rates, especially if they need to buy new homes at higher rates.

He says, "For years, the government has done well in stimulating demand but has failed miserably in increasing supply. This is particularly evident in the current housing supply shortage."

Biden also outlined other ways he's trying to raise housing market prices and increase housing supply. According to Realtor.com's latest data, the median list price for homes in February was $415,500. Meanwhile, according to Freddie Mac, the average mortgage rate for a 30-year fixed-rate loan was 6.88% in the week ending March 7.

The Biden administration has also eliminated the requirement for property insurance on federally backed mortgages, saving homeowners $750 or more when refinancing. He will continue to ask Congress to provide a maximum of $25,000 for first-time homebuyers.

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Biden's Proposed Homebuyer Tax Credit: Challenges and Opportunities