Additional help could be on the way for first-time homebuyers if a tax credit proposed on the campaign trail is implemented.
As a candidate, President Joe Biden proposed the First Down Payment Homebuyer Tax Credit, which could be significant in aiding potential first-time homebuyers. For starters, the credit could be used to cover all or a considerable share of a buyer’s down payment.
With home prices rising ever higher, any down payment assistance is welcomed when a family is looking to buy.
In Utah, for example, the median sales price of a home increased nearly 11% in the past year alone — putting even more pressure on the savings needed for a down payment.
“The Biden Presidency could bring several impactful changes to the housing market,” said Lawrence Yun, chief economist of the National Association of Realtors, in a November presentation. “The homebuyer tax credit he proposed as a candidate would help Americans cover their down payment costs and is likely firmer assurance of government guarantees to mortgages backed by Fannie Mae and Freddie Mac.”
For years, aspiring homebuyers have struggled unsuccessfully to save enough for a down payment. Student loan payments along with ever-increasing childcare costs and other urgent needs have made the goal of buying that first home elusive for many Americans.
In addition, the financial hardships brought upon us by the COVID-19 pandemic have hit minorities and lower-wage workers particularly hard. These demographics especially would immediately benefit from the Biden proposal.
In fact, NerdWallet’s 2020 Home Buyer Report found that 37% of buyers surveyed said that not having enough saved for a down payment was an obstacle to homeownership.
Similarly, 25% of buyers surveyed in the National Association of Realtors 2020 Profile of Home Buyers and Sellers said that saving for a down payment was one of the most difficult steps in the home-buying process.
The data suggests there is a need for assistance. In fact, 22% of recent buyers used a gift from a relative or friend as a source of their down payment, according to the National Association of Realtors Profile of Home Buyers and Sellers.
Down payment assistance — in this case, up to $15,000 — could help hopeful buyers get a foot in the door. And making the credit advanceable would mean buyers could access the funds upon closing rather than having to wait until next year when their tax return is filed and the refund arrives.
That said, policies to increase the supply of homes are also important so homebuyers have housing choices and options.
A look at the current housing market and mortgage data, for example, shows up an upward trend in home buying without the necessary corresponding increase in supply.
For instance, existing-homes sales totaled 5.64 million in 2020 — their highest level since 2006, before the Great Recession — with mortgage rates at all-time lows. But while demand is high, supply is registering at a 50-year low, according to the National Association of Realtors.
Similarly, in Utah, Realtors sold a record number of homes in 2020; however, the inventory of homes for sale was at its lowest point on records dating back to 2003, according to the Utah Association of Realtors.
This means home prices will continue to soar unless more residential units can be created. So, in addition to the proposed tax credit for homebuyers, other incentives that increase supply are also needed in order to keep home prices affordable.
To keep up to date on more housing news as well as learn about conditions in the market, contact a local Realtor. Find one at MyRealtorStory.com.