Will a tax credit for first-time homebuyers be available in 2021?
To keep a campaign promise, the President called on Congress to pass a tax credit for first-time homebuyers and two House members have answered the call.
Two House representatives, Earl Blumenauer (D-OR) and Rep. Jimmy Panetta (D-CA), have followed the President’s lead and introduced a bill that would provide first-time homebuyers with a tax credit valued at 10% of the property’s purchase value, up to $15,000.
Rep. Blumenauer stated that the legislation would help those who have been historically shut out of the housing market as prices and demand continue to rise to unprecedented levels. The act would target low and middle-income families in the United States, particularly families of color, and would who have been subjected to decades of discriminatory and racist “housing policies that have left massive wealth, homeownership, and opportunity gaps between white communities and communities of color.”
The representatives have released data that indicates that this sort of federal intervention is necessary as levels of Black homeownership have not increased since 1996. Meanwhile, the levels for Latinx, Asians, and white homeowners have increased steadily.
Housing market in 2020
Many experts who study trends in the housing market thought that the market might slow down considerably during the pandemic. To their surprise, just the opposite occurred, with the market increasing 5.6% compared to 2019. The market may stabilize in the coming year as fewer people expect to make the types of moves they did last year while settling into the "new normal." To date, price increases are driven by a low supply in the market that is expected to continue throughout 2021.
Requirements to qualify for the new tax credit
The Act defines a “first type homebuyers” as a person who has not bought a home in the last three years. Additionally, to target the tax credit at families who need this type of assistance to make their home buying dreams a reality, the proposal outlines a few requirements:
• Income: The tax credit can only be given to recipients whose income is no more than 160% of the median income in the area.
• Property Value: The property can be worth no more than 110% of the median house price in the area.
• Residence Type: The credit can be claimed for houses used as primary residences but could not be used for a vacation home.
Additionally, there are limits on the number of houses that could be claimed.
In the wake of the 2008 Financial Crisis, Congress passed the Housing and Economic Recovery Act to instill confidence in the housing market. The federal government understood that people who had bought their houses just before, during, and even after the housing market collapse could find themselves underwater on their mortgage.
The tax credit passed covered homes purchased between April 2008 and July 2009 and allowed homebuyers to claim a credit of up to 10% of the purchase price, up to $7,500. More than 1.5 million homebuyers claimed this benefit before it expired in 2010. Since the 2008 collapse, economists have warned that younger generations, who are burdened with student loan debt, are not buying houses at the same level as their parents or grandparents. With the amount of student debt owed in the US at topping historic levels, this proposed tax credit and student debt cancellation could give the economic recovery needed after the pandemic ends a jolt of energy. With less income going to pay back debt, consumers would have a higher disposable income which they could use to stimulate the grow the economy or save for a rainy day.
When would the tax credit be available?
If passed this year, the credit could be available as soon as next year. But, the legislative future of the initiative remains unclear. The legislation was introduced on 26 April and will now move into committee for review by other House members. If the House of Representatives votes to approve the Bill, it will move to the Senate, where it will face an uphill battle.
The initiative has not been included under the American Families Plan, but during negotiations, the measure could be added.