ECONOMY & WORK
MONEY 101
NEWS
PERSONAL FINANCE
NET WORTH
About Us Contact Us Privacy Policy Terms of Use DMCA Opt-out of personalized ads
© Copyright 2023 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.
MARKETREALIST.COM / ECONOMY & WORK

How Biden's Tax Credits May Transform Homebuying, Open Doors for First-Time Home Ownership

The Biden administration believes that by offering these tax credits, the real estate market will open up and become more accessible to people.
PUBLISHED MAR 11, 2024
Cover Image Source:  U.S. President Joe Biden | Photo by Chip Somodevilla | Getty Images
Cover Image Source: U.S. President Joe Biden | Photo by Chip Somodevilla | Getty Images

President Biden aims to provide financial assistance to aspiring first-time homebuyers amidst the current housing market challenges. His proposed plan includes a $5,000 annual tax deduction for two years, easing the financial burden of homeownership. Additionally, homeowners selling their first property would receive a $10,000 tax deduction.

Image Source: U.S. President Joe Biden delivers the annual State of the Union address before a joint session of Congress in the House chamber at the Capital building| Photo by Shawn Thew-Pool | Getty Images
Image Source: U.S. President Joe Biden delivers the annual State of the Union address | Photo by Shawn Thew-Pool | Getty Images

However, the implementation of these proposals requires congressional approval. "I know the cost of housing is so important to you. If inflation keeps coming down, mortgage rates will come down as well. But I’m not waiting," Biden said during his State of the Union speech Thursday night.

What do Biden's homebuying tax credits include?

President Biden's plan supports middle-class families in purchasing homes through two credits. The "mortgage relief credit" provides $5,000 annually for two years, reducing the effective mortgage interest rate by 1.5% for first-time homebuyers. This makes owning an average-priced home more accessible.

Furthermore, a one-year credit of up to $10,000 is also available to middle-class families who sell their "starter homes" (homes below the average price in their area) to other families who will occupy them. This credit encourages homeowners to downsize, making it easier for first-time buyers to find affordable homes, especially if they have lower mortgage rates than what's currently available.

Image Source: Grace Carry/ Getty Images
Image Source: Photo by Grace Carry | Getty Images

Experts are still unsure if Biden's proposal will move forward, especially since it's an election year and Congress is divided.

How will this impact the housing market?

The Biden administration believes that by offering these tax credits, the real estate market will open up and become more accessible to people. They project that the first-time buyer tax credit will assist roughly 3.5 million middle-class families in purchasing their first home.

Moreover, this credit would essentially reduce the cost of home ownership by approximately 1.5 percentage points over two years, making it more accessible, especially for those looking to buy a median-priced property.

A real estate sign is seen at a property in Croydon Park | Getty Images | Photo by Lisa Maree Williams
Image Source: A real estate sign is seen at a property in Croydon Park | Getty Images | Photo by Lisa Maree Williams

The homeowner tax credit is expected to assist over three million households in buying larger homes. The White House claims that mortgage rates on many existing homes are lower than what is currently available This creates a "lock-in" effect, where homeowners are hesitant to sell and give up their lower rates, even if their current homes no longer suit their needs.

Analysis of the housing market

According to Redfin research, property prices and mortgage rates skyrocketed in 2023, making it difficult for buyers. To afford a $408,806 median-priced property, for instance, a person making the median income in the United States, which is approximately $78,642, would have had to spend roughly 41.4% of their wages.

Compare that to 38.7% in 2022. As of March 7, the average rate for a 30-year fixed-rate mortgage remained approximately 7%, despite a modest decline from their 2023 levels.

Image Source: Photo by Pixabay | Pexels
Image Source: Photo by Pixabay | Pexels

Expert insights

"We’re close to multidecade highs for mortgage rates. Unless [Biden’s proposed credit] counts as qualifiable income, it’s not going to actually make it easier for homebuyers to qualify for mortgages," said Keith Gumbinger, vice president of mortgage website HSH.

According to Janneke Ratcliffe, vice president for housing finance policy and leader of the Housing Finance Policy Center at the Urban Institute, several factors, including a decline in new home development, have affected the housing supply during the Great Recession. This, in her opinion, is a "perfect storm" for problems with housing supply.

"What we don’t need today in the market is more demand. We have plenty of demand, but we don’t have adequate supply," Gumbinger explained.

MORE ON MARKET REALIST
Steve Harey forced the contestants hiding to come out and address the situation.
16 hours ago
Rick Harrison were creeped out by the handcuffs but still wanted to buy them.
17 hours ago
Cuban was interested in the tech side of the company but was annoyed when his doubts got no answers.
18 hours ago
She had already won more than $21,000 and a trip to Portugal before heading to the round.
1 day ago
The contestant even apologized to Steve Harvey after her answer was called out.
1 day ago
The host urged fans not to laugh at the answer, as it might come back to bite them in the future.
1 day ago
The seller lacked any solid proof and as a result, nobody on the show wanted to offer him a deal.
2 days ago
The contestant wished that bars gave free alcohol to those already drunk out of their minds.
2 days ago
It would have been easy for Amy Schneider to respond harshly to the accusations, but she remained cool and collected.
2 days ago
The host was left shocked after hearing the answer as he mouthed "wow" a couple of times.
2 days ago
The contestant went on to win $20,000 for her family despite the awkward moment.
3 days ago
The entrepreneurs might have hoped that a third of their company would attract a shark, but it didn't.
3 days ago
She was just happy to be on the show and was not disappointed about leaving empty-handed.
3 days ago
Things got heated as all of the sharks took shots at each other for a chance to cut a deal.
3 days ago
The entrepreneur was selling a DVD set about men's grooming, which was priced at a whopping $297.
4 days ago
Some might have expected the host to be a bit upset but he was entertained.
4 days ago
The entrepreneurs had initially asked for $50,000 for a 50% stake in the company.
4 days ago
She had uploaded photos and videos from a taping on her Instagram stories.
4 days ago
The former contestant was a star on the show in 2017, winning $413,000 over 13 games.
5 days ago
The contestant took her own sweet time to come to the podium and Steve Harvey wasn't having it.
5 days ago