Anyone looking to buy a home today is likely frustrated by sky-high prices and slim pickings. But, newly elected President Joe Biden, will aim to ease those issues as he gears up to implement his plans for the housing market. From home financing to home construction, Biden's plans are focused on affordability. Here are some policies he could push for:
$15,000 first-time homebuyer tax credit
Urging big banks to get back into FHA lending
Encouraging new construction of both single- and multifamily housing
Strengthening the Community Reinvestment Act, which is intended to help low- and moderate-income areas
In December, the number of homes for sale plummeted nearly 40% compared with December 2019, according to realtor.com.
"Looking forward, we could see new [inventory] lows in the next couple of months as buyers remain relatively active, but a surge of new COVID cases may slow the number of sellers entering the market," said Danielle Hale, chief economist at realtor.com.
Tax Break for 1st - time Homebuyers
Biden is proposing a $15,000 first-time homebuyer tax credit, which could be accessed immediately by the buyer, thereby serving as down payment assistance.
First-time buyers, defined as those who have not purchased a home in at least three years, made up 32% of all November homebuyers, according to the National Association of Realtors. Historically, that share is closer to 40%.
The tax credit could exacerbate the inventory shortage, by juicing demand even more. But the nation's homebuilders, who have had a difficult time keeping up with demand, could also get a boost from Biden. They have been hampered by the high costs of land, labor, materials, and regulations.
FHA lending to take a larger role
The prospects are likely better for another type of relief for lower-income buyers — a drive to increase lending by the FHA, which is a low downpayment loan option heavily favored by first-time buyers. The FHA could also reduce its monthly insurance premiums under the new leadership.
Big banks could not only help broaden the availability of more affordable mortgages, thanks to their ample capital, but they are also bound by the Community Reinvestment Act, which nonbanks are not. Banks have a statutory obligation to commit to reinvest funds from communities that they take deposits from. Biden wants to strengthen the CRA and make it apply to non-bank lenders as well.
And then there is the elephant in the room — mortgage rates, which are now on the rise.
While Biden has no direct control over mortgage rates, his impact on the economy will surely influence Fed decision-making.
A stronger economy should offset even a small move higher in rates, especially since they're coming off a record low.