- President Biden proposed a “mortgage relief loan” of $5,000 per year for two years for middle-class first-time home buyers.
- It also calls for a one-year credit of up to $10,000 for middle-class families who sell their “starter homes” to another owner-occupant.
- However, experts have mixed opinions on whether the policies will help the country’s housing affordability problems.
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President Joe Biden has released plans to address the nation’s affordable housing woes, including new tax breaks for first-time home buyers and “starter home” sellers. However, experts are divided on the proposals.
“I know housing affordability is so important to you,” Biden said during his State of the Union address Thursday night.
“If inflation continues to decline, mortgage rates will also fall. But I’m not waiting,” he said.
Biden has proposed $5,000 a year for two years of “mortgage relief” for middle-class first-time homebuyers, which would be equivalent to cutting the mortgage rate on a median-priced home by 1.5 percentage points over two years. according to a plan 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 “starter homes” to another owner-occupant. They define starter homes as properties below the median price for the seller’s county.
U.S. President Joe Biden delivers the State of the Union address in the House of Representatives at the U.S. Capitol in Washington, DC on March 7, 2024.
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“Many homeowners have lower mortgage rates than they currently have,” the White House said. “This ‘lock-in’ effect makes homeowners reluctant to sell and give up that low price, even in circumstances where their current homes no longer meet their household needs.”
Still, it’s hard to predict whether Biden’s proposal will advance during a presidential election year, especially with a divided Congress, experts say.
With home prices and mortgage rates rising, 2023 was the least affordable year for homebuyers in more than a decade, according to a Redfin report.
In 2023, people with a median U.S. income of $78,642 would spend 41.4 percent of their earnings buying a home at a median price of $408,806, up from 38.7 percent in 2022, the report found.
Although rates have fallen from peaks in 2023, the average interest rate for 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 mortgage website HSH.
“Unless [Biden’s proposed credit] is considered qualifying income, it will not actually make it easier for homebuyers to qualify for mortgages,” he said.
Of course, higher mortgage rates are only one piece of the country’s affordable housing puzzle.
“The housing supply crisis has really gotten worse since the Great Recession,” said Janeke Ratcliffe, vice president for housing finance policy and head of the Urban Institute’s Housing Finance Policy Center.
The housing supply crisis really got worse after the Great Recession.
Janeke Ratcliffe
Vice President of Housing Finance Policy at the Urban Institute
Since the economic crisis, there has been a “perfect storm” of problems for the country’s housing supply, including a decline in new home construction, she said.
“What we don’t need in the market today is more demand,” Gumbinger said. “We have a lot of demand, but we don’t have enough supply.”
Still, Ratcliffe said she was pleased to see housing affordability highlighted during the State of the Union address. “I think it’s a great starting point,” she said.
