President Biden has proposed a $15,000 tax credit for first-time homebuyers, perhaps aimed at allowing renters who were getting ready to make the jump to homeownership before the pandemic to realize their plans. Not all renters have homeownership in the near future, but it’s possible that the tax credit could help quite a few people. Assuming a down payment of 3.5% for a 30-year loan at 3% interest rate, it could be a boon to renters in 40 of the 50 largest US metros.
Since it’s a flat amount and not a percentage, the tax credit would be especially useful in less expensive metro areas. Areas like Pittsburgh, Cincinnati, Cleveland, and St. Louis could see somewhere around 40% of renters being able to afford a mortgage on the median property with the tax credit. More expensive regions, such as California, aren’t going to benefit as much. It’s more likely that the number of people aided would be only in the thousands. However, these are all probably high estimates, since they are based on the minimum down payment of 3.5% for an FHA loan, which is not ideal.
The proposal does have one major flaw. Currently, demand is quite high and supply is incredibly low. The supply of available properties is already struggling to support the number of prospective buyers. If first-time homebuyers start trying to take advantage of their tax credit, it’s probable they’ll be entirely out of luck. Competition is fierce with multiple offers per property, and those attempting to use tax credits to scrape together money to buy aren’t likely to be providing the best offer.
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