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President Joe Biden has rolled out plans to address the nation's affordable housing issues, including new tax breaks for first-time homebuyers and sellers of “starter homes.” However, experts have mixed opinions about these proposals.
“I know the cost of housing is very important to you,” Biden said during his State of the Union address Thursday evening.
“If inflation continues to fall, mortgage interest rates will also fall. But I am not waiting,” he said.
How Home Starter Sale Credit Works for Home Buyers
Biden proposed a “mortgage relief credit” of $5,000 per year for two years for middle-class, first-time home buyers, which is equivalent to cutting the mortgage interest rate for a median-priced home by 1.5 percentage points for two years. According to a chart released by the White House on Thursday.
The administration is also calling for a one-year credit of up to $10,000 for middle-class families who sell their “primary homes” to another owner. They define starter homes as properties that are below the median price for the seller's county.
US President Joe Biden delivers the State of the Union address in the House Chamber of the US Capitol in Washington, DC, on March 7, 2024.
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“Many homeowners have lower interest rates on their mortgages than current rates,” the White House said. “This ‘lock-in’ effect makes homeowners more reluctant to sell and give up that low a price, even in circumstances where their current home no longer fits their family’s needs.”
However, experts say it is difficult to predict whether Biden's proposal will advance during a presidential election year, especially with a divided Congress.
Interest rates remain near 'multi-decade highs'
With home prices and mortgage interest rates on the rise, 2023 was the least expensive year for homebuyers in more than a decade, according to a report from Redfin.
The report found that in 2023, those with a median U.S. income of $78,642 would spend 41.4% of earnings by purchasing a median-priced home at $408,806, up from 38.7% in 2022.
While interest rates have declined from their peak in 2023, the average interest rate on 30-year fixed-rate mortgages is still hovering around 7%, as of March 7.
“We are near multi-decade highs for mortgage rates,” said Keith Gumbinger, vice president of HSH Mortgage.
“Unless (Biden’s proposed credit) is considered qualified income, it will not be easier for homebuyers to qualify for a mortgage,” he said.
There is a “housing supply crisis”
To be sure, high mortgage interest rates represent only one piece of the nation's affordable housing puzzle.
“The housing supply crisis has actually been worsening since the Great Recession,” said Janneke Ratcliffe, vice president for housing finance policy and head of the Housing Finance Policy Center at the Urban Institute.
The housing supply crisis has already been worsening since the Great Recession.
Janicki Ratcliffe
Vice President for Housing Finance Policy at the Urban Institute
She said that since the economic crisis, there had been a “perfect storm” of issues relating to the country's housing supply, including a decline in new home construction.
“What we don't need today in the market is more demand,” Gumbinger said. “We have a lot of demand, but we don't have enough supply.”
However, Ratcliffe said she was happy to see housing affordability highlighted during the State of the Union address. “I think this is a great starting point,” she said.
