Becoming a first-time homeowner these days is shaping up as an epic challenge. With a record-low selection of properties for sale, high buyer demand keeps on pushing home prices ever skyward. High-stress bidding wars are playing out against a fraught backdrop of the continuing pandemic and struggling economy.
But help may be on the way.
President-elect Joe Biden has proposed a series of actions that could help more first-time buyers achieve the American dream of homeownership. They range from providing down payment and credit assistance to boosting the supply of affordably priced homes on the market. Many of these programs were outlined in the $640 billion housing plan he released during his election campaign.
“Biden is focused on helping first-time buyers get their foot in the door,” says realtor.com Chief Economist Danielle Hale. “It’s a big deal because homeownership is associated with long-term wealth building.”
Buying a first home has become more difficult this year, despite all-time low mortgage rates, because of those double-digit price increases and the dearth of residences for sale. The median home list price was $348,000 in November—a 12.7% jump over last year. Meanwhile, the number of homes on the market plunged 39.2% from last year, when inventory was already extremely low.
That’s why these programs could really help folks to get a toehold on the homeownership ladder. But it remains to be seen whether Biden follows through with his campaign pledges regarding housing. The first part of his term will likely be focused on rolling out the vaccines to get COVID-19 under control and repairing the battered economy.
“It’s a really ambitious agenda,” says Hale. “Whether the housing policies go through depends on how much the administration prioritizes them over the other goals they want to accomplish.”
1. First-time buyers could receive a hefty tax credit
One of the biggest perks for first-time buyers under Biden is likely to be a down payment tax credit of up to $15,000.
The credit won’t take away the pressure of saving up for a down payment, especially as home list prices nationally were a median $348,000 in November—a 12.7% year-over-year jump, according to the latest realtor.com® data. The $15,000 credit only provides a down payment of roughly 4.3% of a median-priced home.
Nonetheless, “That will be a huge step,” says Ali Wolf, chief economist for national building consultancy Zonda. “The No. 1 reason people say they can’t buy a home is coming up with the down payment or closing costs.”
Tax credits for first-time buyers in struggling economies aren’t new. Presidents George W. Bush and Barack Obama used them during the Great Recession to help prop up the housing market, which was crashing and burning. First-time buyers could receive credits up to $7,500 in the first year. In the second, the amount was increased to $8,000. After that, buyers could receive a tax credit or a home loan that they would be on the hook for paying back.
The initiative ended in 2010.
Wolf says those home buyer credits resulted in a modest increase in home sales and prices, strengthening a flagging market.
“Providing more financial assistance to lower-income individuals and first-time buyers would help them,” says Evansville, IN–based real estate agent Trae Dauby, of Keller Williams Capital Realty.
It could be “a huge benefit,” he says.
But not everyone believes a tax credit for buyers will be good for the housing market. During the last recession, there was a glut of empty homes for sale and sellers who couldn’t unload them, prices had plummeted, and buyers were scarce. This time it’s the exact opposite scenario with far more buyers than available properties.
“We’ve got very limited housing inventory across the country, we’ve got the lowest mortgage rates in history, and we have prices going up by double digits. It doesn’t really scream housing needs help here,” says Rick Palacios, director of research at John Burns Real Estate Consulting. The group works mainly with home builders.
“It would be like pouring gasoline on the already hottest part of the housing market, which are starter homes,” he says.
He believes the credit would incentivize even more buyers to jump into the home-buying fray at a time when there aren’t nearly enough abodes to go around.
“All it’s going to do is superfuel demand [further],” he says.
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2. Public servants could receive additional home buying assistance
The former vice president has pledged to help public and national service workers become homeowners by expanding the U.S. Housing and Urban Development’s Good Neighbor Next Door Sales Program. The program is currently open to teachers, firefighters, emergency medical technicians, and law enforcement officers who perform critical jobs but often aren’t paid the big bucks for their service. Under this program they may eligible for additional down payment assistance and discounted prices on homes.
However, there is a catch.
These workers would need to buy their primary homes in either poorer neighborhoods in need of investment or more expensive areas, such as the San Francisco Bay Area, that don’t have much affordable housing.
“It could allow them to … own a home where they want to live,” says Zonda’s Wolf. “It will be a very big deal in places like New York, San Francisco, Washington, DC, Miami, your bigger cities. Those are the markets in particular where you see the most financial burdens.”
But the devil will be in the details of who is eligible and which properties would be covered.
“Additional money for down payment assistance is definitely helpful,” says realtor.com’s Hale. “It’s a great idea, but I don’t know how scalable it will be.”
3. Student loan debt forgiveness could help more Americans become homeowners
The nation’s new president seems supportive of wiping out $10,000 of student loan debt from each borrower. While the exact amount of forgiveness or if this is just wishful thinking remains up in the air, helping folks eliminate debt could have a big impact.
If these folks aren’t forking over large portions of their paychecks to their student loan providers every month, they’ll have more money to put toward accumulating a down payment. The could also have an easier time qualifying for a mortgage if they have less debt.
“If you look at what’s delaying people from saving up to buy a home, student loan debt plays a big part,” says Hale. “College-educated people tend to buy and own homes at a higher rate. That will probably have a bigger impact on the housing market.”
4. A public credit agency would help more buyers qualify for mortgages
On the campaign trail, Biden proposed creating a public credit agency that would have the potential to help more buyers qualify for mortgages. That’s because this agency would factor in on-time rental, utility, and cellphone bill payments in addition to monthly car and credit card payments.
“There are a significant number of credit-invisible people,” says Hale. “[This] could open doors for people.”
This could help more folks build credit, especially those in lower-income and minority communities who may not use more traditional banking services. Good credit is key for being approved for a mortgage from a reputable lender with a lower mortgage rate. Those with scant credit histories or bad history have a much harder time securing a home loan.
5. More affordable homes could go up during a Biden presidency
The biggest problem in the housing market is the lack of homes for sale, particularly more affordable ones. The president-elect has plans to address this.
Biden’s pledged to require and incentivize local and state governments to get rid of regulations that perpetuate racial segregation and make it harder for builders to put up new housing. This could limit local and state government restrictions on the amount of new construction.
He also wants to increase the housing supply by putting $100 billion toward constructing and upgrading affordable housing.
“That could have a big impact on homeownership and our overall economy,” says real estate agent Dauby. “Our prices are appreciating at a pretty good clip because we have such low inventory. It would help ease some of that appreciation.”