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President Biden launches $10,000 first-time homebuyer tax credit

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President Joe Biden has launched plans to address the nation’s affordable housing problems, including new tax breaks for first-time home buyers and “first-time home” sellers. However, experts have divided opinions on the proposals.

“I know the cost of housing is so important to you,” Biden said during his State of the Union address Thursday night.

“If inflation continues to fall, mortgage rates will also fall. But I’m not waiting,” he said.

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Biden has proposed a “mortgage relief credit” of $5,000 per year for two years for middle-class first-time home buyers, which would be the equivalent of reducing the mortgage interest rate on a home priced median of 1.5 percentage points over two years. according to an overview released Thursday by the White House.

The administration is also calling for a one-year credit of up to $10,000 for middle-class families who sell their “first home” to another homeowner. They define starter homes as properties below the seller’s county median price.

U.S. President Joe Biden delivers the State of the Union address in the Hall of the U.S. Capitol in Washington, DC, March 7, 2024.

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“Many homeowners have mortgage rates below current rates,” the White House said. “This lock-in effect makes homeowners more reluctant to sell and give up this low rate, even in circumstances where their current home no longer meets their household needs.”

However, it’s difficult to predict whether Biden’s proposal will advance in a presidential election year, especially with a divided Congress, experts say.

Interest rates remain near “multi-decade highs”

With housing prices and mortgage interest rates soaring, 2023 was the least affordable year for home buyers in more than a decade, according to a report from Redfin.

In 2023, those earning a median U.S. income of $78,642 would have spent 41.4% of their income to purchase a home at the median price of $408,806, up from 38.7% in 2022, according to the report.

Even though rates have declined from 2023 highs, the average interest rate for 30-year fixed-rate mortgages still hovered around 7% as of March 7.

“We are near multi-decade highs for mortgage rates,” said Keith Gumbinger, vice president of the HSH mortgage website.

“Unless (Biden’s proposed credit) qualifies as income qualifying, it won’t make it easier for buyers to qualify for a mortgage,” he said.

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There is a “housing supply crisis”

Of course, rising mortgage interest rates are only one piece of the nation’s affordable housing puzzle.

“The housing supply crisis has really grown 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. .

In fact, the housing supply crisis has worsened since the Great Recession.

Janneke Ratcliffe

Vice President for Housing Finance Policy at the Urban Institute

Since the economic crisis, there has been a “perfect storm” of problems with the country’s housing supply, including a decline in new housing construction, she said.

“What we don’t need in the market today is increased demand,” Gumbinger said. “We have strong demand, but we don’t have enough supply.”

Still, Ratcliffe said she was happy to see housing affordability highlighted during the State of the Union address. “I think it’s a great place to start,” she said.

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