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President Joe Biden has unveiled plans to address the country's affordable housing problems, including new tax breaks for first-time buyers and “entry-level” home sellers. However, experts have different opinions on the proposals.
“I know that housing costs are 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 $5,000-a-year “mortgage relief loan” for two years for middle-class first-time home buyers, which would be equivalent to reducing the mortgage interest rate on a median-priced home by 1.5 percentage points for two years. This emerges from a draft published by the White House on Thursday.
The administration is also requiring a one-year loan of up to $10,000 for middle-class families who sell their “starter homes” to another owner-occupier. They define entry-level homes as properties that are priced below the average price for the seller's county.
US President Joe Biden delivers the State of the Union address in the House of Representatives at the US Capitol in Washington, DC on March 7, 2024.
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“Many homeowners have lower mortgage rates than they currently have,” the White House said. “This 'lock-in' effect makes homeowners more reluctant to sell and forego the low interest rate, even if their current homes no longer meet their household's needs.”
But it's difficult to predict whether Biden's proposal will make progress in a presidential election year, especially given a divided Congress, experts say.
Interest rates still near 'multi-decade highs'
According to a report from Redfin, 2023 was the worst year for home buyers in more than a decade amid rising home prices and mortgage rates.
In 2023, those with an average U.S. income of $78,642 would have spent 41.4% of income on purchasing a home at the median price of $408,806, up from 38.7% in 2022, the report said .
Although rates have fallen since their peak in 2023, the average interest rate on 30-year fixed-rate mortgages was still around 7% as of March 7.
“We are close to multi-decade highs in mortgage rates,” said Keith Gumbinger, vice president of mortgage website HSH.
“Unless [Biden’s proposed credit] “Even though it's considered countable income, it's not really going to make it any easier for homebuyers to qualify for mortgages,” he said.
There is a “housing crisis”
Of course, higher mortgage rates are only one part of the country's affordable housing situation.
“The housing supply crisis has actually worsened since the Great Recession,” said Janneke Ratcliffe, vice president of housing finance policy and director of the Housing Finance Policy Center at the Urban Institute.
The housing supply crisis has actually worsened since the Great Recession.
Janneke Ratcliffe
Vice President of Housing Finance Policy at the Urban Institute
Since the economic crisis, there has been a “perfect storm” of problems for the country's housing supply, including declines in new home construction, she said.
“What we don’t need in the market today is more demand,” said Gumbinger. “We have a lot of demand, but not enough supply.”
Still, Ratcliffe said she was pleased that housing affordability was highlighted in the State of the Union address. “I think this is a good starting point,” she said.