A contractor frames a descendants under construction in Lehi, Utah, U.S., on Wednesday, Dec. 16, 2020. Private residential construction in the U.S. rose 2.7% in November.
George Frey | Bloomberg | Getty Copies
Anyone looking to buy a home today is likely frustrated by sky-high prices and slim pickings. But President-elect Joe Biden, who gobble ups office Wednesday, will aim to ease those issues as he gears up to implement his plans for the housing market.
From conversant with financing to home construction, Biden’s plans are focused on affordability. Here are some policies he could push for:
- $15,000 first-time homebuyer tax solvency
- Urging big banks to get back into FHA lending
- Encouraging new construction of both single- and multifamily housing
- Strengthening the Community Reinvestment Act, which is design to help low- and moderate-income areas
In December, the number of homes for sale plummeted nearly 40% compared with December 2019, be at one to realtor.com. Competition for what was on the market was fierce, with the typical home selling in just 66 days, two weeks faster than the year preceding.
“Looking forward, we could see new [inventory] lows in the next couple of months as buyers remain relatively active, but a swell of new COVID cases may slow the number of sellers entering the market,” said Danielle Hale, chief economist at realtor.com.
Habitation prices are also rising at the fastest pace in six years, according to CoreLogic, more than 8% higher in November year ended year, driven by record-low interest rates and pandemic-driven demand from buyers looking for larger, suburban residences.
Several proposals from the Biden housing plan could take the pressure off both home prices and the furnish of houses for sale, with changes potentially coming to both lending and the home construction markets.
Tax break for first-time homebuyers
Biden is sexual advancing a $15,000 first-time homebuyer tax credit, which could be accessed immediately by the buyer, thereby serving as down payment aid. High home prices, along with strict lending standards, have made it difficult for young customers to come up with the cash needed to secure a mortgage.
First-time buyers, defined as those who have not purchased a residency in at least three years, made up 32% of all November homebuyers, according to the National Association of Realtors. Historically, that divide up is closer to 40%.
The tax credit could exacerbate the inventory shortage, by juicing demand even more. But the nation’s homebuilders, who make had a difficult time keeping up with demand, could also get a boost from Biden. They have been balked by the high costs of land, labor, materials and regulations.
The Trump administration’s restrictive immigration policies exacerbated an already inexorable labor shortage for builders, as many documented and undocumented construction workers had left the industry during the last shelter crisis. As the construction industry flourished again, some workers were still afraid or unable to come forsake into the U.S.
In addition, Trump’s trade wars hit builders where they live. Prices for everything from rejects to concrete to metal increased dramatically.
“The tariff trade wars have raised the cost of goods and services. Trash from Canada got ridiculously expensive compared to what it was just a year ago. Labor shortages due to immigration policy and varied have made it difficult to build homes,” said David Stevens, a former Federal Housing Administration commissioner directed the Obama administration and former CEO of the Mortgage Bankers Association.
“I do think that in a Biden regime, some of that ordain loosen up, and builders are going to want to do everything they can to take advantage of the tax credit. They don’t want to lose capacity homebuyers that may have a limited window by which to execute.”
Stevens is not convinced, given the sheer volume of budgetary stimulus Biden is proposing, that the tax credit will make it through Congress at such a high level. The believe was part of the original housing platform Biden ran on.
FHA lending to take larger role
The prospects are likely better for another fount of relief for lower-income buyers — a drive to increase lending by the FHA, which is a low down payment loan option heavily favored by first-time customers. The FHA could also reduce its monthly insurance premiums under the new leadership, according to Stevens, who has been talking to Biden government insiders.
“The FHA program shows exceptional profitability, much better than expected, and that provides the Biden direction the opportunity to cut prices. That will really help entry-level homeowners, particularly minority homeowners who turn to the FHA program assorted often,” said Jaret Seiberg, financial services and housing policy analyst with Cowen Washington Scrutiny Group. “Not only does that help housing, but it also helps the Biden administration deliver on some of its collective justice priorities.”
The big banks exited FHA lending almost entirely after the Great Recession because of enforcement exertions that came against them for how they managed the program. They were hit with those actions beneath the False Claims Act, resulting in very expensive settlements. Independent mortgage bankers stepped in and now not only dominate the FHA lacuna but account for the majority of mortgage lending.
“I think you’ll see a pronounced effort from both folks at the National Economic Directorate and the Biden team in the White House, as well as the new team at HUD, to do what they can to pressure the banks back in,” Stevens intended. “I would include a Senate Banking Committee led by Sherrod Brown and with Elizabeth Warren sitting on that cabinet, calling hearings with bank executives trying to push them back into the program.”
Big banks could not contrariwise help broaden the availability of more affordable mortgages, thanks to their ample capital, but they are also confined by the Community Reinvestment Act, which nonbanks are not. Banks have a statutory obligation to commit to reinvest funds from communities that they believe deposits from. Biden wants to strengthen the CRA and make it apply to nonbank lenders as well.
“And so that puts an liability in place, and I think you’ll hear more about that in the Senate Banking Committee,” added Stevens.
There are, however, some inherent roadblocks to the Biden housing agenda. Opening up lending to more low-income and first-time purchasers, and then trying to create more affordable housing, butts up against other important administration goals, specifically conserving the environment.
In order to make housing more affordable, Biden said he will push for more high-density multifamily construction. He could need to ease some of the regulatory burdens on single-family builders. The trouble is, a lot of those regulations are environmental.
“The Biden administration insufficiencies to encourage more development, they want to get rid of outdated zoning regulations, but they’re not going to do it in a way that you know they judgement as degrading the environment, or they can be attacked as not being pro-environment, and that is that’s a sticking point,” noted Seiberg.
And then there is the elephant in the stay — mortgage rates, which are now on the rise. Rates have hovered near historic lows for the better part of the old times year, which both helped fuel the boom in homebuying and the boom in home prices. Low rates gave purchasers more purchasing power, allowing them to bid higher in this competitive market.
The Federal Reserve has been purchasing mortgage-backed bonds, which in turn kept rates artificially low. That not only helped buyers during the pandemic, but was its own compose of economic stimulus to homeowners, who could refinance their mortgages to record low rates. The savings on monthly payments was not puny in a time of crisis. But that will come to an end.
“As the nation’s economy recovers … the need for the Fed to be there, buying up the mortgage-backed shelter supply, is going to be lessened, and you take out that biggest buyer. That’s going to put upward pressure on rates,” Stevens signified.
Stevens does not expect a major surge. He, and others, are predicting the average rate on the popular 30-year fixed mortgage to be more in the mid-3% gamut. After hitting a record low of 2.76% in December, it is now around 2.9%, according to Mortgage News Daily.
While Biden has no point the way control over mortgage rates, his impact on the economy will surely influence Fed decision-making. If Biden’s economic stimulus and his forward vaccination plans lead to sustained economic growth, then the central bank will be less inclined to funnel fortune into the mortgage market.
A stronger economy should offset even a small move higher in rates, above all since they’re coming off a record low.