Key Highlights
- 27.4% of renter households could afford homeownership with $15K in down payment assistance
- 63% renters said saving for down payment was barrier to homeownership
- $15K tax credit could count as minimum down payment in 40 of 50 largest metros
Biden’s $15,000 Tax Credit for First-Time Buyers Could Make Homeownership Doable
Candidate Joe Biden, during the 2020 presidential campaign, proposed a $15,000 advanced tax credit for first-time home buyers to help cover the cash required for a minimum down payment.
It turns out that this proposal would make homeownership possible for approximately 9.3M renter households (27.4% nationwide) in some 40 of the 50 largest metros in this country.
Assuming a 3.5% down payment (the minimum needed for an FHA-insured mortgage on a 30-year fixed-rate mortgage at 3% interest), such a $15K advanced tax credit could turn renters into homeowners. Those renters would not have to spend more than 30% of their income in order to buy a median-priced house.
Homeownership in Affordable Metros Could Be Possibility
Nearly 40% of renters in the relatively affordable Midwest could become homeowners. Even 10 – 17% of renters in California could become homeowners with a $15,000 redeemable, advanced tax credit for first-time homebuyers.
Take a look:
– Pittsburgh PA 40.5%
– Cincinnati OH 39.7%
– Cleveland OH 39.0%
– Virginia Beach VA 38.9%
– St. Louis MO 38.5%
– Sacramento CA 17.3%
– San Francisco CA 16.3%
– San Diego CA 12.8%
– San Jose CA 12.1%
– Long Beach/Anaheim 10.1%
Barrier to Homeownership is Down Payment, Not Monthly Costs
For most renters, the challenge of homeownership is saving enough to make a dent in the amount required for a down payment. According to Moody’s Analytics, it’s estimated that renter households save 2.45% of their income per year. At that rate, it would take a renter 14 years to save $15,000.
An immediate $15,000 tax credit all by itself could be enough for an entire down payment in many affordable metros, or 40 of the 50 largest metros in this country.
If/When Broadening Access to Credit Happens, Next Barrier to Homeownership Becomes Higher Prices
Let’s just assume the obvious…down payment assistance would lead to more demand in an environment that already has off-the-charts demand. More demand in such an environment would translate into even more off-the-charts home prices and sales activity.
Zillow research indicates that sales can continue to grow in this as is sales environment BUT technology tools and access to technology tools would also have to grow in order to assist more buyers. Likewise, supply would have to grow as well so that first-timers would have a chance in competing with better-qualified or faster-acting/ tech-enabled peers.
Thanks to Zillow.
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