President Joe Biden Proposes $10,000 Tax Credit For First-Time Homebuyers

Biden is putting in the work!

President Joe Biden is proposing a new way to combat the crippling housing market by proposing a $10,000 tax credit for first-time homebuyers.

A separate credit would also help owners get out of a “starter home” — defined as homes below the median home price in their county — and grab keys to a bigger house. Announcing it during the State of the Union address on Mar. 7, Biden feels it would assist homeowners in moving on after locking in low mortgage rates during the pandemic and being afraid to face significantly higher mortgage rates.

Americans must earn six figures to buy a typical home, compared to just $59,000 in 2020. Housing prices have moved by 27% since the beginning of the COVID-19 pandemic, but with mortgage rates increasing, the cost of buying a house comes with a heavier price tag.

Affordable housing advocates, including National Housing Council CEO David M. Dworkin, are praising the ideas of the presumptive 2024 Democratic presidential nominee. However, the plan must first be voted on by Congress, as Dworkin called it “the most consequential State of the Union address on housing in more than 50 years.” Tax credits would help Americans of all ages and creeds tackle the rising issue of lowering the cost of purchasing a home.

Here’s how it would work: First-time homebuyers would qualify for an annual tax credit of $5,000 over two years, equal to $10,000. Geared towards middle-class families, the credits would be limited to households earning under $200,000. A tax credit would also be open to current homeowners who already own starter homes. The owners would then have to sell their home to another owner-occupant over an investor.

Homebuyers looking to build can also take advantage of the plan. The Biden Administration also proposed efforts to fund the construction of affordable homes and rental units. With the new Neighborhood Homes Tax Credit, providing an incentive to build or renovate starter homes or properties appealing to first-time homebuyers, the plan could potentially lead to 2 million new units.

With the overall goal of helping melt a frozen real estate market and make homebuying more affordable, some critics say the tax credits will lead to a rise in demand without increasing supply – which would circle back to an issue of affordability. Jaret Seiberg of investment bank TD Cowen called the plan “disappointing.”

He feels it doesn’t address the need for entry-level homes in the areas homebuyers actually want to live in.

But Biden feels the plan would help over three million middle-class families buy their first home by providing a fair 1.5% reduction for two years on the median-priced home. “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.”

The plan may take some time to implement before the November 2024 election. However, Biden wants Congress to pass legislation so homebuyers would receive the credit they could claim on tax returns starting during the 2024 or 2025 tax year.