This is indeed great news for prospective homebuyers who are concerned about potential increases in mortgage rates when buying a new home.
President Joe Biden during his State of the Union address, talked about a big concern many people have – “the cost of housing”. To address this, he announced that he would provide homebuyers with $400 as a tax credit per month.
The plan suggests giving a $10,000 tax credit, but instead of getting it all at once, it would be spread out over two years for first-time homebuyers and those selling their starter homes.
Biden called on Congress to make it a law that gives a special tax credit to middle-class people. He informed that it's like reducing interest rates on loans by 1.5% points.
This tax credit will also be available for those buying their second home. The goal is to increase the number of properties listed for sale helping more fresh home buyers afford homes.
What do the real estate experts say?
While homebuyers may be happy about getting tax credits, some experts are concerned. They think these credits might actually make home prices go up due to increased demand as there aren't enough homes available.
Chief Economist Danielle Hale from Realtor.com says – “It's well-intentioned and aims to address the fact that housing faces a supply problem more than a demand problem”
She adds that – This special tax credit might encourage builders to keep building more homes, increasing the supply. But if there aren't enough homes available, and more people decide to buy because of this tax credit, the prices of homes might go up.
Other Supportive Initiatives by the President
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Federal Housing Assistance Programs
Biden has a plan to make it easier for families with lower and middle income to get help from Federal Housing Assistance Programs.
He wants to give more funds to programs like Section 8 vouchers and the Low-Income Housing Tax Credit. These programs help people afford safe places to live.
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Affordable housing units
He has also said that it’s important to invest in building affordable housing units. To help create these affordable housing projects in various communities, Biden said that he’ll be allocating Federal Funds.
This is primarily focused on places where there's a severe shortage of homes.
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Housing Market Discrimination
Additionally, he’s concerned about discrimination & segregation in the housing market. He’s saying that it's not just about making homes affordable, but also making sure everyone is treated fairly and has the same opportunities when it comes to housing.
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Impact of Climate Change
Climate change is another important issue that was emphasized during the President’s address. He suggested ideas to build homes that are good for the environment and can withstand challenges like extreme weather.
This includes investing in energy-efficient houses and taking steps to shield communities from the effects of severe weather conditions.
MBA’s CEO Appreciates Administration's Housing Affordability Initiatives
CEO Bob Broeksmit said –
“MBA welcomes the Administration’s focus on legislative reforms and regulatory fixes that increase single-family and multifamily housing supply and help to make homeownership more affordable and attainable for all qualified borrowers. This is even more important in today’s high mortgage rate environment.”
Even though he found some aspects helpful, he still wondered if the suggestions about closing costs and title insurance were the right choices as he was concerned that these changes might weaken protections for consumers, raise risks, and reduce the competition.
Key points on Biden's tax credit proposals
Broadly speaking, Biden's proposed measures aim to make homeownership more accessible, especially for middle-class families and first-time buyers.
However, their success depends on upcoming elections and the differences of opinion among members of the United States Congress.
Meanwhile, eligible homeowners can benefit from existing federal tax credits and deductions, like using retirement funds for down payments, mortgage interest deductions, and state-specific incentives for first-time buyers.
As a first-time homebuyer, you might qualify for state-offered incentives and programs. Contact your state's housing department for further details.