Biden intends to give a big boost to buyers and builders

Anyone looking to buy a home today is likely to be frustrated by the high prices and scarce choices. But President-elect Joe Biden, who will take office on Wednesday, will seek to ease these issues as he prepares to implement his plans for the housing market.

From financing to building a house, Biden’s plans are focused on accessibility. Here are some policies that he could advocate:

• $ 15,000 tax credit for first-time buyer
• Urging large banks to return to FHA loans
• Encouraging the new construction of single-family and multi-family houses
• Strengthening of the Community Reinvestment Law, which aims to help low and middle income areas

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

“Looking to the future, we could see new [inventory] the casualties in the coming months, as buyers remain relatively active, but an outbreak of new COVID cases could decrease 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, more than 8% higher in November from one year to the next, driven by record interest rates and demand driven by the buyer pandemic that looking for bigger houses in the suburbs.

Several proposals in Biden’s housing plan could ease pressure on house prices and the supply of houses for sale, with changes potentially reaching the loan and building markets.

Biden is proposing a $ 15,000 tax credit to the home buyer for the first time, which can be accessed immediately by the buyer, thus serving as payment assistance. High house prices, coupled with strict lending standards, made it difficult for young buyers to find the money needed to secure a mortgage.

First-time buyers, defined as those who have not bought a home in at least three years, represented 32% of all November buyers, according to the National Association of Realtors. Historically, this participation is closer to 40%.

The tax credit can aggravate stock scarcity, further increasing demand. But construction companies in the country, which have difficulty keeping up with demand, may also get an incentive from Biden. They have been 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 undocumented and documented 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

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

“Tariff trade wars have increased the cost of goods and services. Canada’s wood has been ridiculously expensive compared to what it was just a year ago. Shortages of labor due to immigration and other policies made it difficult to build homes, “said David Stevens, a former Federal Housing Administration commissioner under the Obama administration and a former CEO of the Mortgage Bankers Association.

“I really think that under a Biden regime, a little bit of that is going to loosen up, and builders are going to want to do everything they can to take advantage of the tax credit. They don’t want to lose potential home buyers who may have a window cap run. “

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

The outlook is likely to be better for another type of relief for low-income buyers – an effort to increase loans through the FHA, which is a low down payment loan option, strongly favored by first-time buyers. The FHA could also reduce its monthly insurance premiums under the new leadership, according to Stevens, who has been talking to people inside the Biden administration.

“The FHA program shows exceptional profitability, much better than expected, and this provides the Biden administration with an opportunity to cut prices. This will really help entry-level owners, particularly minority owners who resort to 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, it also helps the Biden government to fulfill some of its social justice priorities.”

The big banks abandoned FHA loans almost entirely after the Great Recession because of coercive actions that went against them for the way they managed the program. They were hit by these actions under the False Claims Act, resulting in very expensive deals. Independent mortgage bankers stepped in and now not only dominate the FHA space, but are responsible for most mortgage lending.

“I think you will see a pronounced effort by both members of the National Economic Council and Biden’s team at the White House, as well as the new HUD team, to do whatever they can to pressure banks to come back,” Stevens said. “I would include a Senate Banking Committee chaired by Sherrod Brown and with Elizabeth Warren on that committee, calling audiences with bank executives trying to push them back into the program.”

Big banks can not only help expand the availability of more affordable mortgages, thanks to their broad capital, but they are also bound by the Community Reinvestment Act, which is not the case with financial institutions. Banks have a statutory obligation to commit to reinvesting funds from the communities from which they receive deposits. Biden wants to strengthen the CRA and make it applicable to non-bank creditors as well.

“And it imposes an obligation, and I think you will hear more about it from the Senate Banking Committee,” added Stevens.

There are, however, some obstacles inherent in Biden’s housing agenda. Opening loans to more low-income and first-time buyers and then trying to create more affordable housing goes against other important management goals, specifically protecting the environment.

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

“The Biden government wants to encourage more development, they want to get rid of outdated zoning regulations, but they are not going to do it in a way that you know they consider degrading to the environment, or they can be attacked as not being pro-environment, and this is a critical point, “noted Seiberg.

And then there’s the elephant in the room – mortgage rates, which are now rising. Rates hovered close to historic lows for most of last year, which helped fuel the boom in home purchases and home prices. Low rates have given buyers more purchasing power, allowing them to bid higher in this competitive market.

The Federal Reserve has been buying mortgage-backed securities, which in turn keep rates artificially low. Not only did this help buyers during the pandemic, it was their own form of economic stimulus for homeowners, who could refinance their mortgages at low rates. The savings in monthly payments were not insignificant in times of crisis. But it will end.

“As the country’s economy recovers … the need for the Fed to be there, buying the mortgage-backed security supply, will be reduced and you will withdraw the biggest buyer. This will put upward pressure on rates,” said Stevens said.

Stevens does not expect a big increase. He, and others, are predicting that the average rate on the popular 30-year fixed mortgage will be in the 3% range. After hitting a record low of 2.76% in December, it is now around 2.9%, according to Mortgage News Daily.

Although 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, the central bank will be less inclined channeling money into the mortgage market.

A stronger economy should compensate for even a slight upward movement in rates, especially as they are emerging from a record low.