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The administration of Joe Biden has planned to give up to $15,000 to apply toward a down payment for first-time homebuyers. The proposed First Down Payment Tax Credit is one of many housing-related proposals that Biden campaigned on. The Biden administration has plans to help cost-burdened renters, address racial inequities, and encourage energy efficiency. Point to be noted that the administration’s centerpiece plan is the First Down Payment Tax Credit. It would provide qualified buyers up to $15,000 that could go toward the down payment. The money would be advanced to buyers at closing, so they would not have to wait until filing their tax returns before collecting. Coming up with a down payment is a serious hurdle for many would-be first-time buyers.

People who didn’t own homes were asked what their main obstacle was in NerdWallet’s 2020 homebuyer survey. It was the main hindrance to homeownership for 37% to those not having enough saved for a down payment. The editor of the housing publication Shelterforce, Miriam Axel-Lute said, “A tax credit to supplement down payments could be helpful to those particular home buyers who didn’t quite have the money to build up a down payment and closing costs. But, it wouldn’t address deeper problems created by the tax system”. Axel-Lute favors reforming or getting rid of the tax deductions for mortgage interest and property taxes, which subsidize well-off homeowners who have big home loans and high taxes. It could shift the focus of government help toward people with lower incomes and more modest homes.

The First Down Payment Tax Credit could accelerate home price growth immediately after the implementation. It is noteworthy that there aren’t enough homes for sale to meet demand. But, the tax credit would increase the number of hopeful home shoppers. The result would be even faster price growth without an increase in the number of homes for sale. The supply of homes for sale was a record low 2.3 months. It clearly indicates that at November’s sales pace, it would take a little over two months to sell all 1.28 million homes that were on the market. The sellers take advantage of their negotiating power over buyers when supply is so low. November’s median home price of $310,800 was 14.6% higher than the median price 12 months earlier. President Biden’s proposed tax credit is modeled on a home buyer tax break that was in effect from April 2008 through April 2010.