How Will Biden’s Presidency Affect the US Housing Market?

The Trump-Biden presidential election has been one of the most divisive in American history. Whichever side you’re on, with any change in administration comes change to the housing market. How will Biden’s presidency affect the US Housing Market and homeownership?

Biden’s election manifesto spells out his belief that ‘housing should be a right, not a privilege’. Biden aims to close the wealth gap and make housing accessible and affordable for the majority of Americans. We look beyond the rhetoric to see what steps Biden plans to implement that will affect homeowners.

First-time buyers

Biden plans to introduce a $15,000 tax credit for first-time buyers to help them purchase a property. This could be great news for prospective homebuyers, particularly as the tax credit would be applied at the time of purchase, rather than when they file a tax return. The tax credit would, therefore, help first-time buyers overcome one of the largest barriers to homeownership — the down payment. One drawback of this scheme is in areas where demand for homes far exceeds supply, it could force house prices to increase.

Investment in housing

To address the supply/demand dilemma, Biden has pledged a $640 billion investment in housing, almost half of which will be in the construction of new housing. Construction is vital to stimulate post-Covid economic recovery.

Construction

Biden sees housing as integral to many other societal challenges, which is why it has been a focal point in his campaign. Biden will tackle environmental responsibility, for example, by creating 1.5 million sustainable homes as part of the investment in construction.

FACT: The average 30-year mortgage interest rate fell to record lows of 2.65% in early January this year.

Will mortgage interest rates rise under Biden?

While it is impossible to predict exactly what will happen with mortgage interest rates, Biden’s generous government investment in housing could cause interest rates to increase. There is speculation that this investment could be partially funded by fees attached to home sales backed by GSEs like Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac were put in conservatorship after the 2008 financial crash. The Trump administration made progress towards recapitalizing the GSEs, but this decision will now rest with Joe Biden. He is likely to keep Fannie Mae and Freddie Mac in conservatorship.

Interest Rates

One factor that could derail Biden’s plans is inflation. In recent years, American homeowners have benefitted from low interest rates and low inflation, but there’s no telling how long this could continue.

Help for homeowners

COVID-19 has widened the wealth gap in America with Biden himself describing the economic impact of the pandemic as ‘K-shaped’. The rich get richer, while the poor get poorer. The purchase of luxury homes in America has increased 40% throughout the pandemic; simultaneously, 10.5% more people find themselves in mortgage forbearance.

Biden’s $1.9 trillion mega-stimulus package aims to bridge the gap, coming at an important time as many forbearance periods are due to end on 31st January.

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