Biden’s Plan to Lower Housing Costs 🤔

Author

Nick Steinhauer
March 11, 2024

Good morning, team! Last week President Biden outlined a proposal with ideas on helping the housing industry in his State of the Union and there was another scorching jobs report. How did these affect the industry as a whole? Let’s dive in!

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Read time: ~4 minutes

Rates ended DOWN compared to last week, and volatility was LOW. Rates are in the high 6’s for most loan types without paying discount points. Paying discount points can get you in the low-to-mid 6’s.

Biden’s Plan to Lower Housing Costs 🤔

Ahead of the State of the Union Thursday, President Biden laid out a lengthy plan to lower rents and the cost of buying/selling a home.

  • Mortgage Relief Credit for Buyers - With rates in the high 6% range, the White House wants to provide a $5,000 annual tax credit for 2 years for middle-class first-time homebuyers to reduce the burden of higher rates. On an average home, this would effectively reduce the rate by “more than 1.5%” for those two years.

  • Mortgage Relief Credit for Sellers - To tackle the “lock-in” effect (homeowners not selling their home due to their low interest rate), the White House proposes a $10,000 one-year tax credit to middle-class families who sell and give up that low rate.

  • Down Payment Assistance for First-Generation Homeowners - Up to $25,000 in down payment assistance for first-generation buyers.

  • Lowering Closing Costs - The President wants to curb unnecessary junk fees certain banks charge when financing a home. He also wants to pilot a program removing the need for lender’s title insurance on refis, which could save up to $1,500 in closing costs.

  • Plans to Build and Preserve 2 Million Homes - Additionally, Biden outlined additional credits, funds and other ideas to build more homes.

As a note, these are all just proposals at this time. Nothing would go into action until approval from Congress.

Key Takeaway: Looking at this from an unbiased perspective, these ideas read well. However, the biggest issue facing our country today is lack of inventory and most of the short-term proposals increase demand. The longer-term ideas address the lack of inventory in this nation and will take time to play out, if they are even carried out in the first place.

Increasing demand too quickly without available inventory will push housing prices higher negating many of the benefits of relief efforts.

At first blush, I really liked the tax credit for homeowner’s selling their starter home to another owner-occupant. However, this doesn’t increase supply. The seller needs another place to live so it just exacerbates the supply issue by increasing demand.

What’s Hiding in the Feb Jobs Report 🔍

Friday morning, the US Bureau of Labor Statistics released the February non-farm payroll figures and, AGAIN, the numbers crushed expectations.

  • 275,000 new jobs added vs. 198,000 expected

  • Unemployment rate actually bumped up to 3.9% vs. 3.7% last month

If you scrub the entire announcement, the real truth popped out in literally the final paragraph. If you blinked, you might have missed it.

Remember, the January report came in at 353,000 new jobs, almost double the 180,000 expected. Since that report, mortgage rates ran higher. With this revision down to 229,000 the beat looks less significant, and could be revised down even further in the coming months.

From September to January, the payroll numbers were revised DOWN 312,000 jobs!

Key Takeaway: I want to believe the Bureau of Labor Statistics is an honest organization, but these latest reports seem super suspect. Headline jobs numbers CRUSH expectations and cause panic in the markets only to be revised lower in the subsequent months hidden in the footnotes of the report. I think the markets are catching on to this new practice since we didn’t see mortgage rates skyrocket on Friday’s big 275,000 add.

CPI Inflation Data Tomorrow 🎢

Tomorrow morning we’ll get a view on the latest round of inflation data. We are 9 days out from the next Fed meeting on 3/20. Currently the markets aren’t anticipating a rate cut at this meeting.

Instagram Posts from Last Week

Don’t hesitate to reach out if you need anything at all. Have a wonderful week!