Frustration over the lack of affordable homes for sale has finally reached the highest level of government — as in the president of the United States.
During his State of the Union address last week, President Joe Biden announced a series of proposals aimed at improving affordability for middle-income households and expanding programs that help low-income Americans achieve homeownership.
Although Biden announced several initiatives, the ones garnering the most attention are the first-time homebuyer and homeowner tax credits.
Here’s how much of a credit is being proposed:
- First-time homebuyers would receive a total credit of $10,000, spread over two years, or $5,000 per year.
- Homeowners who sell their “starter” home (defined as one that is valued below the area’s median home price) would get a $10,000 tax credit for one year.
The goal of the homebuyer tax credit is to provide some relief from the high cost of financing a home today. The White House estimates that the credit would be equivalent to having a lower mortgage rate — as much as 1.5 percentage points lower, which is a pretty big difference.
The homeowners' tax credit is intended to motivate owners who feel “locked in” by their low mortgage rate to sell and move up into a larger home, providing the market with some much-needed affordable housing options.
Dan Green, CEO of Homebuyer.com, tells me that Biden’s proposal will “help level the playing field for lower- and middle-income households.”
But not every prediction is as rosy. There are concerns in some quarters that the tax credit will attract more buyers to a market that is still extremely low on inventory, and the increased competition for homes could cause home prices to rise, at least temporarily.
As to who will qualify for the tax credits, there are no official requirements yet, but Green thinks that the framing of the proposal will follow Biden’s 2021 homebuyer tax credit proposal, which was not approved by Congress.
If that’s the case, a first-time buyer would be defined as someone who hasn’t owned a home in the past 36 months, has a modest income based on their location and is using the tax credit for the first and only time (sorry, no refills here).
But until Biden’s plan is actually presented to Congress, discussed and approved, we won’t really have all the details. For now, it’s all about the possible impact Biden’s plan could have on the housing market.
“The long-term effect is more homebuying, more homebuilding and stronger U.S. communities,” Green says.
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