Creating affordable and accessible housing is one of the most highlighted points coming out of the Biden administration. Biden’s administration has already discussed a $15,000 tax credit for first-time homebuyers, tax credits to help renters, and working towards increasing the supply of affordable housing. Even though Biden’s administration prioritizes these issues, if the Republicans retain control of the Senate, making major economic policy changes will be difficult.
Further, financial experts are split on how Biden’s housing policies will affect the working and middle class. Some experts claim that these policies will revive the middle- and working-class real estate market and help a larger number of Americans own property. However, other economists believe that these policies will lead to higher tax rates that could stifle growth.
One important note is that with Covid-19 still driving many economic decisions and a divided government likely, the policies that Joe Biden is proposing are far from certain.
Mortgage Interest Rates
One of the most common questions people have is if Biden plans on raising mortgage interest rates, thus, falsifying his claim to make housing more affordable. In general, both Democrat and Republican presidents support low-interest rates as low-interest rates can help stimulate the economy.
However, presidents do not have the legal power to set interest rates. This task falls on the Federal Reserve. Thus, President Trump did not lower mortgage interest rates. Instead, the reason why interest rates have been so low over the past decade is because of the 2008 financial crisis and now the Covid-19 pandemic. Thus, if there is a Covid-19 vaccine that helps to quickly boost the economy, the federal reserve will likely raise interest rates back to around 3 percent. However, even if a Covid-19 vaccine is created relatively soon, do not expect interest rates to increase to previously accepted levels immediately.
Some people are raising similar concerns with the refinance market. However, Biden has not discussed this area of real estate yet so any claims on this situation are mere speculation.
$15,000 Tax Credit
The main focus on Biden’s $640 billion housing plan that his campaign debuted in February was to help a larger percentage of Americans achieve homeownership. To achieve this goal, Biden is proposing to give first-time homebuyers a tax credit as high as $15,000 to help with the down payment of their home. What makes this plan so unique is that homebuyers can actually use this money at the time of purchase. As home prices have risen significantly across the United States in recent years due to low-interest rates and a low supply of affordable housing, this policy could drastically help many people.
The current median home list price in the United States is $350,000. Thus, by following traditional advice, homebuyers must pay anywhere between $35,000 – $70,000 for a down payment. Even before the current economic crisis, many people did not have anywhere close to this amount in savings.
Renters Credits
Biden’s plan aims at helping struggling renters keep their apartments. To achieve this goal, Biden wants to increase funding to Section 8 vouchers. Thus, every low-income American who qualifies for the program would receive assistance. This would be a major improvement to the program as 25 percent of households eligible for waivers don’t receive them. In addition to funding this program, Biden plans on offering a low-income renters tax credit. This tax credit would cap their housing costs to 30 percent of their income. At the same time, Biden will also continue the eviction stoppage that President Trump began.
Federal Reserve
A Board of Governors with seven members runs the federal reserve. Currently, there are two of the seven seats that need to be filled. However, it will be likely that president trump fills these two seats before Biden’s inauguration. If Trump does fill the two remaining seats, there will be six Republicans and one Democrat on the board. This will not last forever though as Biden will have the opportunity to fill five board seats. He will also be able to replace the current Fed chair, Jerome Powell.
Though the Federal Reserve does not control interest rates on mortgages, the baseline interest rates the committee sets will affect mortgage rates. However, even when Biden replaces the members of the Fed, it is unlikely that the new members of the committee will significantly change course.
Fannie Mae and Freddie Mac
During the 2008 financial crisis, both Fannie Mae and Freddie Mac went under government conservatorship. This simply means that the government took control of these institutions.
The Trump administration had discussed allowing these two companies to become private again. However, it is unlikely that the Biden administration will go through with this idea. The first reason for this is that both companies have sent almost $110 billion to the Treasury since 2008. This is important as this money has offset annual deficits. The second reason for this is that if these two companies go private, it would simply raise the mortgage rates.
Final Thoughts
While Joe Biden may change the United States’ economic policies in a way that affects the real estate market, passing these policies will be seriously limited if the Republicans maintain control of the Senate. Until the Senate runoff race is decided in Georgia, interest rates will remain low even if Covid-19 is significantly curbed.
Contact Our DC Law Office for More Information
Finally, for more information on what a Biden presidency means for real estate and housing policy, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding real estate law, check out our blog.