When the Fed cut the Fed Funds rate to zero at the onset of Covid-19, it caused mortgage rates to drift under 3%, giving the illusion of helping home buyers. But it has been the sellers who have reaped the big rewards.
The San Diego Case-Shiller Index has gone up 19% in 13 months, and the NSDCC median sales price has INCREASED 38% between March, 2020 and May, 2021.
Creating a state program to increase demand would do the same thing.
Hat tip to both Mitch and Anna for sending in this article.
An excerpt:
Flush with a historic budget windfall of more than $100 billion, state lawmakers have a chance to put their money where their mouths are on housing. Assembly and Senate budget leaders alike have identified homeownership as key, but must still agree on the details.
The Assembly has made it a priority to increase investment in the finance agency’s down payment assistance program. By how much, or the source for that funding, is yet to be hammered out.
In his revised budget that he submitted to the Legislature on Friday, Gov. Gavin Newsom proposed a $100 million state and federal investment in the same program. Newsom also proposed $100 million to finance “granny flats” and other accessory dwelling units for low- and middle-income families.
Senate Democrats have a more radical idea. Under their pandemic recovery budget blueprint released last month, the state would partner with first-time homebuyers to buy through what they’re dubbing “California Dream for All.” The state would pay, and own, up to 45% of the home, cutting the purchase price for people by nearly half. For example, a family could buy a $400,000 home for $220,000 under the program.
The money would come from a yet-unspecified revolving fund set up by the state, with shares sold to investors. As home values increase, so would the value of the shares.
The Democrats have proposed commissioning the state treasurer to hash out the program in greater detail and present it back to the Legislature for approval in 2022.
The expansion in homeowner aid would disproportionately favor low-income communities of color who most need the help, allowing the state to “circle around” the constitutional provisions that bar the state from considering race in programs, said Muhammad Alameldin, economic equity fellow at the Greenlining Institute in Oakland.
Link to Full ArticleTwitter comments here:
The state senate passed this bill on June 1st – now at the assembly for a vote:
SB 601, as amended, Ochoa Bogh.
Personal income taxes: exclusions: capital gains: sale of residence.
The Personal Income Tax Law provides, in modified conformity to federal income tax laws, for the manner in which taxable gains are to be recognized upon the disposition of property, including real property that is the principal residence of the taxpayer.
Existing law allows an individual to exclude from their gross income up to $250,000 or $500,000, as specified, of gain realized on the sale or exchange of their residence if the taxpayer owned and occupied the residence as a principal residence for an aggregate period of at least 2 of the 5 years prior to the sale or exchange.
This bill, for taxable years beginning on or after January 1, 2021, and before January 1, 2026, would revise the exclusion to provide that if the buyer of a qualified principal residence, as defined, is a qualified first-time homeowner, as defined, the amount of the exclusion is increased to $300,000 or $600,000, as specified.
The bill would limit the increased exclusion amount to transactions in which, on or before the closing date of the sale or exchange of the qualified principal residence, the seller obtains a certification from the buyer in writing, signed under penalty of perjury, that the buyer is a qualified first-time homeowner and including specified information concerning the sale of the qualified principal residence.
By expanding the scope of the crime of perjury, this bill would impose a state-mandated local program.
The bill would additionally provide that these provisions are only operative for taxable years for which resources are authorized in the annual Budget Act or other statute for specified purposes.
Existing law requires that any bill introduced on or after January 1, 2020, that would authorize certain tax expenditures, as defined, or tax exemptions contain, among other things, specific goals, purposes, and objectives that the tax expenditure or exemption will achieve, detailed performance indicators, and data collection requirements.
This bill would provide findings and declarations relating to the goals of the expansion of the exclusion from gross income for sales of a qualified principal residence to a first-time homeowner.
They are proposing a five-year, $20 billion commitment to acquire more permanent housing for the homeless, create more low-income housing assistance programs, improve housing affordability with emergency grants and tax relief benefits and provide a new California Dream for All program for first-time homebuyers.
“The proposal is to create a fund in the state of California,” Caballero explained. “The homeowner would put up part of the purchase price depending on what their income allows them to do and the fund would put in the rest.”
The program would, essentially, help cut the cost for first-time homebuyers nearly in half by allowing them to purchase a home with a silent partner who owns a minority share of up to 45%. Therefore, a $400,000 home could be bought for $220,000, with the other $180,000 being picked up by the investor.
“You have to ask, why would someone contribute that much as a private investor? Well, they’re giving them the capital gains exclusion,” Lebrecht told FOX40.
https://fox40.com/news/local-news/democratic-state-senators-propose-new-programs-to-help-first-time-homebuyers-in-post-pandemic-economy/
If the buyer can’t afford to purchase a home at $400,000, how are they going to afford the property taxes for a $400,000 home!? Or will they also split the property tax liability?
Did you click on the calmatters link? It links to an entirely different article about reparations
Yes I did – the excerpt is down towards the bottom of that article.
California Socialist State
I’m struggling to see how this doesn’t cause prices to go higher and make houses even more unaffordable in the long run.
Josh is correct. Fewer market houses means higher prices.
With such a finite supply, prices have nowhere else to go. This could get far more desperate.