Published by REALTOR.com | March 8, 2024
The White House estimates it would help almost 3 million families.
President Joe Biden might have thrown a lifeline to aspiring homebuyers in his State of the Union address on Thursday evening, but some experts fear that it could result in higher home prices.
The president said he would like to provide first-time and repeat homebuyers with a tax credit worth $400 a month for the next two years. The Democrat’s administration estimates this could help more than 3.5 million middle-class families.
Biden also wants to provide a $10,000 incentive to homeowners who sell their starter homes to free up more housing inventory.
“I know the cost of housing is so important to you,” Biden said. “If inflation keeps coming down, mortgage rates will come down as well. And the Fed acknowledges that, but I’m not waiting.”
Homebuyers might be cheering, but some real estate experts have expressed concern that these tax credits, worth about $20,000 collectively, could result in higher home prices. That’s because these incentives are likely to drive more buyers into the market at a time when there is a severe housing shortage.
When there is more demand than supply, prices tend to go up. More bidding wars, offers over the asking price, and waived contingencies could result.
It’s also important to note that these proposals have not been approved by Congress and could face an uphill battle.
“It’s well-intentioned and aims to address the fact that housing faces a supply problem more than a demand problem,” says Realtor.com® Chief Economist Danielle Hale.
“In a best-case scenario, this tax credit gives builders enough confidence to keep building. That could help bring about more supply,” she says. However, “without the supply boost, this tax credit could bring out more buyers, there aren’t more homes for sale, and home prices go up.”
She points out that the typical homebuyer today has a roughly $2,100 monthly mortgage payment (excluding property taxes, home insurance, and homeowners association fees). That $400 a month would cover nearly a fifth of that bill.
Ken Johnson, a real estate economist at Florida Atlantic University in Boca Raton, FL, put it even more bluntly.
“The housing market is on fire, and we’re throwing gas on it with these proposals,” he says. “I’m very worried it would make prices go up. You’re providing economic incentives for consumers to bid prices up.”
To increase the available housing supply, Biden is also calling on Congress to provide middle-class homeowners who sell their starter homes with a $10,000 tax credit. This would apply to homes priced below the area’s median home price in their counties that are sold to other owner-occupants.
The White House estimates it would help almost 3 million families.
