WASHINGTON — Tucked into President Biden’s mammoth 2025 budget are initiatives aimed at helping first-time homebuyers and others who are victims of today’s high interest rates and surging home values.
Biden’s proposed new tax credit, first mentioned in his State of the Union speech last week, would give first-time homeowners a $10,000 tax credit over two years. The incentive would also be offered to current homeowners who want to sell a house that is at or below their area’s median home price but are reluctant to put their home on the market.
The Federal Reserve raised interest rates repeatedly in its fight to tame inflation, prompting a rise in mortgage rates.
But many homeowners locked in low mortgage rates during the pandemic, when interest rates were rock bottom, and don’t want to lose those rates, resulting in a scarcity of homes on the market — especially “starter” homes.
So, Biden hopes the tax breaks will result in more homes on the market and the lowering of the cost of purchasing a home.
The president’s budget also proposes $10 billion for the First-Generation Down Payment Assistance program, which would provide states with new grants to help low- and medium-income homeowners come up with down payments or for help with closing costs and mortgage insurance.
Biden’s $7.3 trillion budget, released Monday, is filled with tax increases on corporations and wealthy Americans and new spending on social programs.
Besides the homeowner tax credit, the budget contains a wide range of proposals aimed at combating the effects of inflation, including the cost of tuition, healthcare and childcare.
A lack of affordable housing
According to the Federal Reserve, home prices have surged about 27% since the start of the pandemic. Meanwhile, mortgage rates have come down since their high of more than 7.5 %, but not by much. On Monday, the average mortgage rate was 6.4%.
According to Minneapolis Area Realtors, the supply of homes for sale in the Twin Cities has gradually increased an average of about 3.5% over the last three months.
But the prices of homes in the Twin Cities have also risen steadily. The median sale price of a home in the Minneapolis-St. Paul area was $334,900 in January of 2022 and $353,035 in January of this year, according to the association.
For the state as a whole, Minnesota Realtors say the median price of a home was $315,000 in January of this year.
The real estate industry hailed Biden’s proposed tax breaks for homeowners.
“The lack of affordable housing supply is hurting the middle class and depriving first-generation and first-time homebuyers of the financial security that homeownership and the American Dream provide,” said National Association of Realtors President Kevin Sears.
He said tax incentives can close the affordable housing gap and that realtors “commend President Biden’s commitment to an all-government approach to solve this problem.”
Some economists, however, said Biden’s inducements to prospective homeowners would result in more buyers on the market, which could drive up prices.
Biden’s proposed homeowner tax credits would not be permanent, good only for those who purchased homes in 2024 and 2025 while mortgage rates — expected to come down later this year — are high.
“I know the cost of housing is so important to you,” Biden said in his State of the Union address last week. “If inflation keeps coming down, mortgage rates will come down as well.”
But the president said he was not waiting.
“I want to provide an annual tax credit that will give Americans $400 a month for the next two years as mortgage rates come down to put toward their mortgage when they buy a first home or trade up for a little more space,” he said.
An election-year blueprint
The White House wants Congress to pass legislation that would enact the tax credits this year, while mortgage rates are still high. But that may be difficult in an election year in which partisanship has soared.
For instance, the House Republican leadership, which includes Majority Whip Tom Emmer, R-6th District, issued a scathing joint statement in response to the president’s proposal.
“The price tag of President Biden’s proposed budget is yet another glaring reminder of this Administration’s insatiable appetite for reckless spending and the Democrats’ disregard for fiscal responsibility. Biden’s budget doesn’t just miss the mark — it is a roadmap to accelerate America’s decline,” the statement said.
Most Democrats praised the budget blueprint.
“Budgets are a reflection of our values, and I’m proud of the budget put forward by President Biden that protects and enhances our social safety net,” said Rep. Ilhan Omar, D-5th District, in a statement. “While this budget is not perfect, it goes a long way to invest in the needs of the American people.”
Despite the slim chance of implementation, the president’s budget expanded on the initiatives he unveiled at his State of the Union speech and is an election-year blueprint of Biden’s priorities if he and fellow Democrats win in November.
Ana Radelat
Ana Radelat is MinnPost’s Washington, D.C. correspondent. You can reach her at aradelat@minnpost.com or follow her on Twitter at @radelat.
