Biden seems to be giving a big boost to home buyers and builders

Anyone who wants to buy a house today is probably frustrated by the high prices and thin collections. But President-elect Joe Biden, who takes office on Wednesday, will aim to ease these issues as he prepares to implement his plans for the real estate market.

From housing finance to housing construction, Biden’s plans are focused on accessibility. Here are some policies they could promote:

• $ 15,000 tax credit for the first time for the homebuyer
• Urging large banks to return to FHA loans
• Encouraging a new construction of single-family and multifamily housing
• Strengthen the Law on Community Reinvestment, which is intended to help low- and moderate-income areas

In December, the number of homes for sale decreased by almost 40% compared to December 2019, according to realtor.com. The competition for what was on the market was fierce, the typical sale of homes in just 66 days, two weeks faster than the previous year.

“Looking ahead, we could see [inventory] minimums in the next few months as buyers remain relatively active, but an increase in 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 pace in six years, according to CoreLogic, by more than 8% higher in November last year, driven by record low interest rates and the pandemic-driven demand from homebuyers. larger, suburban.

Several proposals in the Biden housing plan could remove the pressure on both house prices and the supply of homes for sale, with changes that could take place in both the credit market and the housing construction market.

Biden is proposing a $ 15,000 tax credit for the first time for the home buyer, which could be accessed immediately by the buyer, thus serving as an advance payment assistance. High house prices, along with strict lending standards, have made it difficult for young buyers to come up with the cash needed to secure a mortgage.

First-time buyers, defined as those who have not purchased a home in at least three years, accounted for 32 percent of all home buyers in November, according to the National Association of Realtors. Historically, that share is closer to 40%.

The tax credit could exacerbate the stock deficit by reducing demand even further. But home builders in the country, who have struggled to keep up with demand, could also get a boost from Biden. They have been hampered by high costs of land, labor, materials and regulations.

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

In addition, Trump’s trade wars have hit builders where they live. Prices for everything from lumber to concrete and metal have risen dramatically.

“Tariff trade wars have raised the cost of goods and services. Canadian timber has become ridiculously expensive compared to what it was just a year ago. Lack of labor due to immigration policy and much more has made it difficult to build homes,” said David Stevens, former commissioner of the Federal Housing Administration under the Obama administration and former executive director of the Association of Mortgage Banks.

“I think that in a Biden regime, some of them will relax, and the builders will want to do everything they can to take advantage of the tax credit. They do not want to lose potential home buyers who may have a limited number of window through which to run. “

Stevens is not convinced, given the high volume of economic stimulus proposed by Biden, that the tax credit will make him through Congress at such a high level. The loan was part of the initial housing platform that Biden operated.

The outlook is likely to be better for another type of exemption for lower-income buyers – an action to increase FHA lending, which is a low-loan option that is highly favored by first-time buyers. The FHA could also reduce its monthly insurance premiums under the new leadership, according to Stevens, who spoke with those within the Biden administration.

“The FHA program has an exceptional return, much better than expected, which gives the Biden administration the opportunity to reduce prices. This will really help homeowners, especially minority homeowners who use the FHA program more often. said Jaret Seiberg, a financial services and housing policy analyst at Cowen Washington Research Group. “This not only helps housing, but also helps the Biden administration meet some of its social justice priorities.”

The big banks gave up FHA loans almost entirely after the Great Recession because of the enforcement actions that came against them for the way they managed the program. They were hit with actions under the Law on False Claims, resulting in very expensive settlements. Independent mortgage bankers have intervened and now not only dominate the FHA space, but account for most of the mortgage lending.

“I think you will see a strong effort by both the National Economic Council and the White House Biden team, as well as the new HUD team, to do everything they can to push the banks back,” Stevens said. . “I would include a Senate banking committee led by Sherrod Brown and Elizabeth Warren on that committee, convening hearings with the bank’s directors trying to push them back into the program.”

Not only can large banks contribute to expanding the availability of more affordable mortgages due to their large capital, but they are also required by the Community Reinvestment Act, which is not the banks. Banks have a legal obligation to reinvest funds from communities from which they receive deposits. Biden wants to strengthen the CRA and apply it to non-bank creditors as well.

“And so there is an obligation and I think you will hear more about that in the Senate Banking Committee,” Stevens added.

There are, however, some blockages inherent in the Biden housing agenda. Opening loans to more low-income buyers for the first time, and then trying to create more affordable housing, runs counter to other important goals of the administration, in particular protecting the environment.

To make housing more affordable, Biden said he would push for high-density multifamily construction. It may want to ease some of the regulatory tasks for single-family builders. 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 regulations, but they won’t do it in a way that you know they think is degrading the environment or they can be attacked for not being pro-environment, and that’s a sticking point, “Seiberg remarked.

And then there is the elephant in the room – mortgage rates, which are now rising. Tariffs were close to historic lows for most of last year, which contributed both to fueling rising house prices and rising house prices. Low tariffs have given buyers more purchasing power, allowing them to bid more in this competitive market.

The Federal Reserve bought mortgage-backed bonds, which in turn kept rates artificially low. This not only helped buyers during the pandemic, but was its own form of economic incentive for homeowners, who were able to refinance their mortgages to record low rates. The savings on monthly payments were not insignificant in a time of crisis. But that will end.

“As the nation’s economy recovers … the need for the Fed to be there, buying the mortgage-backed security provision, will be diminished and you will take out the biggest buyer. That will put upward pressure on rates,” Stevens said. .

Stevens does not expect a major increase. He and others predict that the average rate of the popular 30-year fixed mortgage will be higher in the average range of 3%. After reaching a record high of 2.76% in December, it is now around 2.9%, according to the Mortgage News Daily.

While Biden has no direct control over mortgage rates, its impact on the economy will certainly influence the Fed’s decision-making. If Biden’s economic stimulus and aggressive vaccination plans lead to sustained economic growth, then the central bank will be less inclined to direct money to the mortgage market.

A stronger economy should compensate for even a small higher rate movement, especially as they fall to a record high.