Now that Biden is the President, How Will This Affect the Housing Industry?
President Joe Biden was sworn in as the 46th president of the United States on January 20. While the majority of the focus of this new administration has rightfully been on how they will combat the ongoing COVID-19 pandemic, how Biden and his team handles the economy is also of paramount importance to the recovery of the nation. Aligned with this economic recovery is what the Biden administration plans to do to sustain the growth of the housing market.
Here is what you can expect to see with a Biden administration, how that may affect the housing industry in the months to come, and what potential roadblocks may be in the way of achieving this agenda.
Potential New Homebuyer Tax Credit
One of the biggest potential results of the Biden administration is the proposed new homebuyer tax credit in the amount of $15,000. If this proposal passes, the money would be available immediately to the buyer upon the house closing. This credit would certainly stimulate a housing market that is already proven that it can withstand the economic crisis brought on by the pandemic.
The proposal identifies new home buyers as those who have not purchased a home in at least three years. According to the National Association of Realtors, this demographic made up 32% of all homebuyers last November. In historical terms, this number is generally closer to 40%.
Detractors of the proposal say that the credit is not needed due to the fact that the housing market has remained strong over the last year. The low supply has been coupled with high demand and low interest rates to drive prices up. Those people against the homebuyer tax credit say that it would serve to decrease supply and boost prices even further.
Creating Affordable Housing
Another primary goal of the Biden administration is to create more affordable housing. In order to achieve this initiative, Biden said that he will advocate for more high-density construction appropriate for multifamily living. This could possibly mean that he would need to abolish some of the current outdated zoning regulations.
The problem with this goal is that it goes in contrast to another key Biden administration goal of protecting the environment. Many of the regulations that would need to be eased were originally put in place in an effort to protect the environment. Because it is important for the administration to guard its reputation as being pro-environment, it has yet to be seen how they will confront this contradiction in goals.
Trajectory of Mortgage Rates in Question
All eyes are also on the state of the current mortgage rates. Rates have been at a historic low for most of 2020. These record low rates have helped to prop up the housing market despite the struggling economy. In an effort to keep rates low, the Federal Reserve has been purchasing mortgage-backed bonds. Not only were more people able to get into homes, but current homeowners also took advantage of the low rates to refinance. A slew of refinancing helped many families to access more monthly cash during this time of need.
Although the Biden team does not directly control the direction of mortgage rates, the economy will dictate how the Federal Reserve moves with the rates. If Biden is successful in getting his legislation passed and the economy continues this recovery, the Federal Reserve will be forced to dial back their influence on lowering the rates.
As the economy begins to slowly recover, mortgage rates have once again back on the rise. Economic experts are predicting that the rates will remain at the low end of normal. However, it is likely that they will continue a slow trajectory upward in the coming months.
It should be noted that much of this expected fallout is contingent on Biden being able to pass through his massive $1.9 trillion COVID-19 recovery and economic stimulus package. While this looked daunting just a month ago, the recent wins by the Democrats in the Senate due to the special election in Georgia has put the Biden team in a much better position to pass through their proposed legislation. According to Biden, he hopes to have his package passed by mid-March.
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