How will Kamala’s first time homebuyer program affect first time home buyers?
First let's go over the plan.
Kamala Harris's proposed first-time homebuyer program would provide up to $25,000 in down payment assistance in addition to a $10,000 tax credit from the Biden administration. To qualify for the full amount, applicants must meet specific conditions, including a history of on-time rent payments over the past two years and being a first-generation homebuyer. In this case, a first time home buyer is defined as a buyer whose parents or siblings do not currently own a home.
The Harris campaign estimates that the program could support approximately 4 million first-time buyers over a span of four years. However, after hours of research I was unable to find the specifics. This raises the question about which types of loans might be eligible for the assistance. For instance, FHA loans could potentially allow purchases up to around $715,000, but if the program requires conventional loans with 10% or 20% down payments, the purchasing power for homes would be different. With a 10% down payment of $25,000 you could afford a house worth up to $250,000.
In a market already facing supply shortages, this additional purchasing power would increase demand. The increased demand would instantly affect starter homes where affordability matters the most. Which would push housing prices higher and make them harder to afford for first time home buyers.
If there’s a housing shortage, why are homes sitting on the market longer?
- High Interest Rates: The rise in interest rates has raised monthly payments, deterring some buyers from entering the market. Under the Biden administration, rates currently hover around 7.48%, up from 2.65%*( during covid) with an average around 3.5% in previous years during the Trump administration. For example, with a 20% down payment on a $500,000 home, monthly costs (taxes, insurance, and mortgage) have increased from around $2,279 to $3,444.
- Affordability Challenges: Prices remain high due to recent surges, making affordability a significant barrier despite demand.
- Market Adjustments: The market is undergoing a correction, with some sellers pricing homes above what many buyers are willing to pay in the current interest rate environment.
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