Biden looks to give buyers and builders a big boost

Anyone looking to buy a home today is likely frustrated with the sky-high prices and slim choices. But President-elect Joe Biden, who takes office on Wednesday, will seek to alleviate those problems as he prepares to implement his plans for the housing market.

From real estate financing to residential construction, Biden’s plans are focused on affordability. Here are some policies he could advocate:

• $ 15,000 tax credit for the purchase of a first home
• Urge Big Banks to Return to FHA Loans
• Encourage new construction of single and multi-family dwellings
• Strengthen the law on community reinvestment, which aims to help low and middle income areas

In December, the number of homes for sale fell almost 40% from December 2019, according to realtor.com. Competition for what was on the market was fierce, with a typical home selling in just 66 days, two weeks faster than the year before.

“Looking forward, we might see new [inventory] low in the next two months as buyers remain relatively active, but a wave of new COVID cases could slow the number of sellers entering the market, ”said Danielle Hale, chief economist at realtor.com.

Home prices are also rising at the fastest rate in six years, according to CoreLogic, more than 8% higher in November year-over-year, due to historically low interest rates and demand due to a pandemic from buyers looking for large suburban homes.

Several proposals in Biden’s housing plan could ease pressure on home prices and the supply of homes for sale, with potential shifts in the home-building and loan markets.

Biden offers a $ 15,000 first-time home purchase tax credit, which the buyer could access immediately, serving as a down payment aid. High house prices, along with stringent lending standards, have made it difficult for young buyers to find the cash they need to secure a mortgage.

First-time buyers, defined as those who haven’t bought a home for at least three years, made up 32% of all home buyers in November, according to the National Association of Realtors. Historically, this share is closer to 40%.

The tax credit could exacerbate the inventory shortage, further increasing demand. But homebuilders across the country, which have struggled to keep up with demand, could also benefit from a boost from Biden. They were hampered by the high costs of land, labor, materials and regulations.

The Trump administration’s restrictive immigration policies have exacerbated an already severe labor shortage for builders as many documented and undocumented construction workers left the industry during the latest housing crisis . As the construction industry flourished again, some workers were still afraid or unable to return to the United States.

Plus, Trump’s trade wars have hit builders where they live. The prices of everything from wood to concrete to metal have increased dramatically.

“Tariff trade wars have increased the cost of goods and services. Lumber from Canada has become ridiculously expensive compared to just a year ago. Labor shortages immigration policies and more have made it difficult to build homes, ”said David Stevens, former Federal Housing Administration commissioner under the Obama administration and former CEO of the Mortgage Bankers Association.

“I think in a Biden regime some of that will relax, and the builders are going to want to do whatever they can to take advantage of the tax credit. They don’t want to lose potential buyers who may have a window to run through. “

Stevens is not convinced, given the sheer volume of economic stimulus Biden is proposing, that the tax credit will reach Congress at such a high level. The credit was part of the original housing platform that Biden operated on.

The outlook is probably better for another type of relief for low-income buyers – a willingness to increase FHA loans, which is a low-down payment loan option heavily favored by first-time buyers. The FHA could also reduce its monthly insurance premiums under the new leadership, according to Stevens, who spoke with insiders in the Biden administration.

“The FHA program is showing exceptional profitability, much better than expected, and this gives the Biden administration the opportunity to reduce prices. This will really help new owners, especially minority owners who turn to the FHA program more often. “said Jaret Seiberg, financial services and housing policy analyst at Cowen Washington Research Group. “Not only does this help housing, but it also helps the Biden administration achieve some of its social justice priorities.”

The big banks almost completely abandoned FHA lending after the Great Recession because of the enforcement actions against them for the way they ran the program. They were hit with these actions under the False Claims Act, which resulted in very costly settlements. Independent mortgage bankers have stepped in and now dominate not only the FHA space, but the majority of mortgages.

“I think you’ll see a tremendous effort from the two members of the National Economic Council and the Biden team in the White House, as well as the new HUD team, to do what they can to pressure banks, “Stevens told me. “I would include a Senate Banking Committee chaired by Sherrod Brown and with Elizabeth Warren serving on that committee, calling hearings with bank executives trying to push them back into the program.”

The big banks could not only help expand the availability of more affordable mortgages, with their sufficient capital, but they are also bound by the Community Reinvestment Act, which non-banks are not. Banks have a statutory obligation to commit to reinvesting the funds of the communities from which they take deposits. Biden wants to strengthen the ARC and make it apply to non-bank lenders as well.

“And so that puts an obligation in place, and I think you’ll hear more about that at the Senate Banking Committee,” Stevens added.

There are, however, certain obstacles inherent in Biden’s housing program. Opening up loans to more low-income first-time buyers and then trying to create more affordable housing defeats other important administrative goals, particularly environmental protection.

In order to make housing more affordable, Biden said he would push for more high-density multi-family construction. He might want to ease some of the regulatory burdens on builders of single-family homes. The problem is that many of these regulations are environmental.

“The Biden administration wants to encourage more development, it wants to get rid of outdated zoning bylaws, but it won’t do it in a way that you know it considers degrading the environment, or it can be attacked as not being pro-environment, and that’s a sticking point, ”Seiberg noted.

And then there’s the elephant in the room – mortgage rates, which are now on the rise. Rates have hovered near all-time lows for most of the past year, which has helped fuel both the home buying boom and the home price boom. Low rates have given buyers more purchasing power, allowing them to bid higher in this competitive market.

The Federal Reserve bought mortgage-backed bonds, which kept rates artificially low. This not only helped buyers during the pandemic, but it was also its own form of economic stimulus for homeowners, who could refinance their mortgages to lower rates. The savings on monthly payments were not insignificant in times of crisis. But it will end.

“As the nation’s economy recovers … the need for the Fed to be there, to buy the mortgage-backed security offer, will diminish, and you are eliminating that bigger buyer. . This will put upward pressure on rates, “Stevens told me.

Stevens doesn’t expect a major push. He and others predict that the average rate on the popular 30-year fixed mortgage would be more in the mid-range of 3%. 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 direct control over mortgage rates, his impact on the economy will surely influence the Fed’s decision making. If Biden’s economic stimulus and his aggressive vaccination plans lead to sustained economic growth, the central bank will be less inclined to funnel money into the mortgage market.

A stronger economy should offset even a small, higher movement in rates, especially as they are emerging from a record low.