Due to the combination of rising housing values and high mortgage rates, purchasing a home has become more and more unattainable for Americans. President Joe Biden suggested a new tax credit that would give $10,000 to first-time home purchasers in his State of the Union speech on Thursday.
Due to the combination of rising housing values and high mortgage rates, purchasing a home has become more and more unattainable for Americans. (Photo : by Joe Raedle/Getty Images)
Additionally, for current homeowners who sell their "starter home" to move up to a bigger property, Biden is proposing a second $10,000 tax credit. That may contribute to the melting of a real estate market where homeowners who locked in low mortgage rates before the epidemic are reluctant to sell since their current mortgage rates are much higher.
President Biden's proposals, which require congressional approval, have garnered praise from affordable housing advocates. David M. Dworkin, CEO of the National Housing Council, hailed Biden's State of the Union address as "the most consequential" for housing in over 50 years. The proposed tax credits aim to address housing affordability, a pressing concern affecting Americans across various demographics. Moody's associate economist Nick Luettke highlighted the significance of Biden's efforts, noting that housing affordability has emerged as a critical issue cutting across political divides, while also observing the stability of housing policy in recent congressional budgets.
What You Need to Know About the Tax Credits
President Biden is proposing two tax credits aimed at assisting Americans in purchasing homes during a period of historically low housing affordability. Currently, the average American needs a six-figure income to comfortably afford a typical home, a stark increase from $59,000 just four years ago. Since the onset of the pandemic, home prices have surged by approximately 27%, accompanied by a rise in mortgage rates, further escalating the cost of homeownership.
To alleviate the financial burden of purchasing a home, Biden's proposed tax credits include a $10,000 first-time homebuyer tax credit and a one-year tax credit of up to $10,000 for current homeowners who sell their starter homes. These credits are envisioned as temporary measures to assist individuals in affording a home amidst high mortgage rates. Consequently, they would be available to homebuyers who make purchases in 2024 or 2025, according to a senior Biden administration official cited by CBS MoneyWatch.
The Federal Reserve is anticipated to lower its key interest rate later this year, a move that would reduce borrowing costs across various loan types, including mortgages and credit cards. This expected rate cut could further ease the financial strain associated with purchasing a home.
First-time homeowners would be eligible for a two-year, $5,000 yearly tax credit, up to a total of $10,000.
Current homeowners who own starter homes-defined as properties priced below the county median-would be eligible for a one-year tax credit. The White House stated that the owners would have to sell to another owner-occupant instead of an investor.
Targeting "middle-class families," the Biden administration said that the tax credits would only be available to those making under $200,000.
