Biden proposes $10,000 tax breaks for first-time homebuyers, ‘starter home’ sellers

President Joe Biden has floated plans to address the country’s affordable housing issues, including new tax breaks for first-time homebuyers and “starter home” sellers. However, experts have mixed opinions on the proposals.

“I know the cost of housing is so important to you,” Biden said during his State of the Union speech Thursday night.

“If inflation keeps coming down, mortgage rates will come down as well. But I’m not waiting,” he said.

Biden has proposed a “mortgage relief credit” of $5,000 per year for two years for middle-class, first-time homebuyers, which would be equivalent to lowering the mortgage interest rate for a median-price home by 1.5 percentage points for two years, according to an outline released by the White House on Thursday.

The administration is also calling for a one-year credit of up to $10,000 for middle-class families who sell their “starter homes” to another owner-occupant. They define starter homes as properties below the median price for the seller’s county.

“Many homeowners have lower rates on their mortgages than current rates,” the White House said. “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.”

However, it’s difficult to predict whether Biden’s proposal will progress during a presidential election year, especially with a split Congress, experts say.

With soaring home prices and mortgage interest rates, 2023 was the least affordable year for homebuyers in more than a decade, according to a report from Redfin.

In 2023, those making the median U.S. income of $78,642 would have spent 41.4% of earnings by purchasing a median-price home at $408,806, up from 38.7% in 2022, the report found.

While rates have fallen from 2023 peaks, the average interest rate for 30-year fixed-rate mortgages was still hovering around 7%, as of March 7.

“We’re close to multidecade highs for mortgage rates,” said Keith Gumbinger, vice president of mortgage website HSH.

“Unless [Biden’s proposed credit] counts as qualifiable income, it’s not going to actually make it easier for homebuyers to qualify for mortgages,” he said.

Of course, higher mortgage interest rates are only one piece of the country’s affordable housing puzzle.

“The housing supply crisis has been building, really, since the Great Recession,” said Janneke Ratcliffe, vice president for housing finance policy and leader of the Housing Finance Policy Center at the Urban Institute.

Since the economic crisis, there has been a “perfect storm” of issues for the country’s housing supply, including declines in new home construction, she said.

“What we don’t need today in the market is more demand,” said Gumbinger. “We have plenty of demand, but we don’t have adequate supply.”

Still, Ratcliffe said she was pleased to see housing affordability highlighted during the State of the Union speech. “I think this is a great starting point,” she said.