It looks like the over-heated housing market will cause the government to do something so it looks like they care. There was a $8,000 first-time homebuyer credit back in 2009-2010 that was free money given to those who just happened to buy a house then – nobody bought a house just because of the credit. The same will happen now – it will just be free cheese for those buyers and sellers in the right place, at the right time.
How the two credits would work, according to the White House:
- “Middle-class” first-time homebuyers would get an annual tax credit of $5,000 a year for two years. The White House didn’t specify what “middle class” means.
- A one-year tax credit of up to $10,000 to “middle-class families who sell their starter home, defined as homes below the area median home price in the county, to another owner-occupant.”
President Biden is calling on Congress to pass a mortgage relief credit that would provide middle-class first-time homebuyers with an annual tax credit of $5,000 a year for two years. This is the equivalent of reducing the mortgage rate by more than 1.5 percentage points for two years on the median home, and will help more than 3.5 million middle-class families purchase their first home over the next two years.
To qualify, home buyers must meet the following eligibility standards:
- Must not have owned a home in the last three years.
- Must not be a prior recipient of a first-time home buyer tax credit.
- Must not earn more than 60% above than the area’s median income.
- Must be making an arms-length transaction.
- Must be at least 18 years old.
The President’s plan also calls for a new credit to unlock inventory of affordable starter homes, while helping middle-class families move up the housing ladder and empty nesters right size. Many homeowners have lower rates on their mortgages than current rates. This “lock-in” effect makes homeowners more reluctant to sell and give up that low rate, even in circumstances where their current homes no longer fit their household needs.
The President is calling on Congress to provide a one-year tax credit of up to $10,000 to middle-class families who sell their starter home, defined as homes below the area median home price in the county, to another owner-occupant. This proposal is estimated to help nearly 3 million families.
To qualify for the $10,000 Home Seller Tax Credit, sellers must meet the following eligibility requirements:
- The home seller must live in the home they’re selling as their primary residence.
- The home buyer must make the home their primary residence.
- The home buyer must not earn more than 60% above the area median income.
Additionally, the home for sale must be a starter home which is defined as a home that sells for less than the county’s median home price. Eligible property types include single-family homes, condominiums, townhomes, multi-unit homes, and any other home zoned for residential residence.
The bill will increase available housing inventory for homes selling between $100,000-250,000 which, according to the National Association of REALTORS® Existing Home Sales report, is the fastest-selling segment of U.S. homes.
To take effect, these proposals would require Congressional approval. As of today, neither Democratic nor Republican leadership in the House or Senate has come out to support the measure.
President Biden also called on Congress to pass the Downpayment Toward Equity Act, a downpayment assistance program for first-generation home buyers that gives up to $25,000 in cash grants. The bill was originally introduced in the 2021-2022 Congress, then re-introduced in 2023. It has 44 co-sponsors in the House of Representatives. A corresponding bill is expected to be introduced in the Senate soon.
Every ‘expert’ believes in the rate-lock-in theory, which makes it inevitable that they will push down rates close to 3% again to fix housing. Boy, are they going to be surprised when nobody moves then either (due to higher prices, not rates).
Federal Reserve Chair Jerome Powell twice made the point that he believes the U.S. housing market is undersupplied and will remain so for years to come.
U.S. Senator Jon Tester of Montana asked Powell for his take on the U.S. housing market.
Powell told him that: “There are two big things going on. One is we have this big underlying shortage of housing and it’s due to things like difficulties in zoning… it’s more difficult [for builders] to get people [labor] and materials. Then there are a ton of things happening because of the pandemic and because of inflation, because of higher rates, and those in the short-term are weighing on the housing market. But as [mortgage] rates come down, and that all goes through the economy, we’re still going to be back to a place where we don’t have enough housing.”
Later in the hearing U.S. Senator Raphael Warnock of Georgia asked Powell if he was “concerned about this interplay of low demand yet stubbornly higher [housing] prices and what it means for folks trying to buy a home? And what do you think is driving these high [housing] prices?”
Powell responded saying: “The housing market is in a very challenging situation right now. You have this longer run housing shortage, but at the same time, you have a bunch of things that have to do with the pandemic and inflation and our [The Fed’s] response with higher rates.
You have a shortage of homes available for sale because many people are living in homes with a very low mortgage rate and can’t afford to refinance, so they’re not moving, which means the supply of regular existing homes that are for sale is historically low and a very low transaction rate.
That [all] actually pushes up the prices of other existing homes and also of new homes because there’s just not enough supply. The builders are pushing, but they’re running into all kinds of supply issues still around zoning and workers and things like that… I will say the first problem is a longer run problem.
The other problems associated with low rate mortgage [lock-in] and high [mortgage] rates and all that, those will abate as the economy normalizes and as rates normalize. But we’ll still be left with a housing market nationally, where there is a housing shortage.”
So the buyers have to show the sellers their tax returns to get the credit?
So the buyers have to show the sellers their tax returns to get the credit?
Yes, probably. Then every seller will want the $10,000 extra regardless of buyer, and it will become a buyer premium. The winner pays the highest price + $10,000.
I can’t wait for Biden to address how he is going to fix how many potato chips and how big they should be inside each bag. That’s the kid of leadership and role I’m looking for from government. How in the &$%#*&! did we get here?
Neither of these two candidates could beat anyone else. What a fine mess!