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by Rafael Pena
March 8, 2024
President Joe Biden announced a proposal to introduce tax credits aimed at easing the financial burden on first-time homebuyers.
During his State Of The Union on March 7, President Joe Biden a proposal to introduce tax credits aimed at easing the financial burden on first-time homebuyers and those selling their starter homes.
The primary component of Biden’s proposal is a tax credit for first-time homebuyers, offering $5,000 annually for a period of two years. Simultaneously, the plan includes a $10,000 tax credit for individuals selling their starter homes. The objective is to provide assistance to those grappling with the consequences of soaring home prices and historically high mortgage rates. However, the proposal hinges on approval from Congress to materialize into a concrete policy.
The housing market has faced challenges due to the combination of escalating mortgage rates and home prices. According to the Federal Reserve Bank of Atlanta, the monthly mortgage and interest payment on a median-priced home nearly doubled to $2,111 in December compared to the pre-pandemic era. This surge has made homeownership unattainable for many aspiring buyers.
The tax credit for starter home sellers addresses the issue of a stagnant market caused by the reluctance of homeowners to sell due to higher mortgage rates. The housing inventory crunch has led to continuously rising prices despite a dip in demand. Many homeowners secured low-interest mortgages during the pandemic and are hesitant to trade them for new loans at the current rates, resulting in 2023 being the weakest year for home sales since 1995.
The White House, acknowledging the challenges faced by working families in accessing affordable homes, emphasized the need to break the deadlock in the housing market. The tax credits, a revival of an idea from Biden’s initial election campaign, form part of a broader set of housing policies.
Biden’s proposed measures also include a request to Congress for authorization of $25,000 down-payment assistance for first-time buyers without homeowner parents. While the fate of these ideas remains uncertain in a divided Congress, the administration is issuing executive orders to federal agencies, including a pilot program by the Federal Housing Finance Agency to reduce closing costs on home refinancing and a task force by the Consumer Financial Protection Bureau to tackle “anticompetitive closing costs.”
Furthermore, Biden is advocating for tax credits for builders to create or preserve 1.2 million affordable rental units and 400,000 starter homes. Additionally, a $20 billion competitive grant program is proposed to assist communities nationwide in building housing, accompanied by a plan to double the affordable housing contribution of the 11 government-sponsored Federal Home Loan Banks, generating an additional $3.8 billion.
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