Biden seems to be giving homebuyers and builders a big boost

Anyone looking to buy a home today is likely to be frustrated by skyrocketing and low prices. But President-elect Joe Biden, taking office on Wednesday, will try to alleviate those issues as he prepares to implement his housing market plans.

From home financing to home construction, Biden’s plans focus on affordability. Here are some policies he could push for:

• $ 15,000 tax credit for the first time a home is bought
• Urge major banks to resume providing FHA loans
• Encouraging new construction of both single and multi-family homes
• Strengthen the Community Reinvestment Law, which aims to help low and moderate income areas

According to realtor.com, the number of homes for sale fell by nearly 40% in December from December 2019. Competition for what was in the market was fierce, with typical home sales in just 66 days, two weeks ahead of the year before.

“Looking ahead, we could see new ones [inventory] Lows in the coming months as buyers remain relatively active, but a wave of new COVID business could slow the number of sellers entering the market, ”said Danielle Hale, chief economist at realtor.com.

House prices are also rising at their fastest pace in six years, according to CoreLogic, up more than 8% in November year-on-year, driven by record-low interest rates and pandemic demand from buyers looking for larger suburban homes.

Several proposals from Biden’s housing plan could ease pressure on both home prices and the supply of homes for sale, with potential changes in both the lending and housing market.

Biden suggests a $ 15,000 first-time tax credit for the buyer to purchase a home for the first time, which the buyer has immediate access to and serves as an aid with the down payment. High home prices, along with strict credit conditions, have made it difficult for young buyers to get the money needed to get a mortgage.

According to the National Association of Realtors, new buyers, defined as those who haven’t bought a home in at least three years, made up 32% of all home buyers in November. Historically, that share is closer to 40%.

The tax credit could exacerbate the inventory shortage by tightening demand even more. But the country’s homebuilders, who have struggled to keep up with demand, could also get a boost from Biden. They are held back by the high cost of land, labor, materials and regulations.

The Trump administration’s restrictive immigration policies exacerbated an already severe labor shortage for construction workers, as many documented and undocumented construction workers left the industry during the latest housing crisis. While the construction industry was booming again, some workers were still scared or unable to return to the US.

Plus, Trump’s trade wars are hitting the builders where they live. Prices for everything from wood to concrete to metal rose dramatically.

“The tariff trade wars have increased the cost of goods and services. Canada lumber became ridiculously expensive compared to what it was just a year ago. said David Stevens, a former commissioner of the Federal Housing Administration under the Obama administration and former CEO of the Mortgage Bankers Association.

“I really think that in a Biden regime, some of that will ease, and builders will want to do everything they can to take advantage of the tax credit. They want potential home buyers who may have a limited window to run.”

Given the sheer volume of economic stimulus Biden is proposing, Stevens is not convinced that the tax credit will get through Congress to such a high level. The credit was part of the original residential platform that Biden ran on.

The outlook is probably better for a different type of lighting for lower-income buyers – a drive to provide more loans through the FHA, a low-down loan option that is highly preferred by first-time buyers. The FHA could also cut its monthly insurance premiums under the new leadership, said Stevens, who has been talking to insiders from Biden’s administration.

“The FHA program is showing exceptional profitability, much better than expected, and that gives Biden’s administration the opportunity to lower prices. That will really help first-time homeowners, especially minority owners who are more likely to join the FHA program,” said Jaret Seiberg. , financial services and housing policy analyst at Cowen Washington Research Group. “Not only does that help housing, but it also helps Biden’s administration achieve some of its social justice priorities.”

The big banks almost completely abandoned FHA loans after the Great Recession because of enforcement measures that worked against them for the way they ran the program. Those actions hit them under the False Claims Act, resulting in very expensive settlements. Independent mortgage bankers stepped in and now not only dominate the FHA space, but also account for the bulk of the mortgage loans.

“I think you’ll see a strong effort from both the National Economic Council and the Biden team at the White House, as well as the new HUD team, to do what they can to put the banks under pressure again. Stevens said. said. “I would add a Senate Banking Committee led by Sherrod Brown and with Elizabeth Warren on that committee, which is organizing hearings with bank executives trying to push them back into the program.”

Not only could major banks help increase the availability of more affordable mortgages, thanks to their ample capital, but they are also bound by the Community Reinvestment Act, which non-banks are not. Banks have a legal obligation to commit to reinvest funds from communities from which they receive deposits. Biden wants to strengthen the CRA and make it apply to non-bank lenders as well.

“And so that creates an obligation, and I think you’ll hear more about that in the Senate Banking Committee,” added Stevens.

However, there are some inherent hurdles to Biden’s housing agenda. Opening up loans to more low-income people and new buyers, and then trying to create more affordable housing, clashes with other important administrative goals, especially environmental protection.

To make housing more affordable, Biden said he will push for more high-density family homes. It could ease some of the regulatory burden for single-family builders. The problem is that many of those regulations are environmentally friendly.

“ The Biden government wants to encourage more development, they want to do away with outdated zoning, but they’re not going to do it in a way that you know will harm the environment, or they could be attacked like they aren’t. pro-environment, and that’s a sticking point, ”noted Seiberg.

And then there’s the elephant in the room – mortgage rates, which are now on the rise. Rates hovered near historic lows for most of the past year, both contributing to the home buying boom and the home price boom. Low rates gave buyers more purchasing power, allowing them to bid higher in this competitive market.

The Federal Reserve has bought mortgage-backed bonds, which in turn kept interest rates artificially low. That not only helped buyers during the pandemic, but also provided an economic boost for homeowners, who were able to refinance their mortgages at record prices. Savings on monthly costs were not insignificant in times of crisis. But that comes to an end.

“As the country’s economy is recovering … the need for the Fed to be there, buying up the mortgage-backed collateral, will be reduced, and you will get that biggest buyer out. That will put upward pressure on rates. Stevens says. said.

Stevens does not expect a big increase. He and others predict that the average interest rate on the popular 30-year fixed mortgage will be more in the middle of 3%. After a record low of 2.76% in December, it is now around 2.9%, according to Mortgage News Daily.

While Biden has no direct control over mortgage rates, his impact on the economy will certainly influence Fed decision-making. If Biden’s economic stimulus and his aggressive vaccination plans lead to sustained economic growth, the central bank will be less inclined to channel money into the mortgage market.

A stronger economy should compensate for even a small price increase, especially as they come from a low point.