At different stages of the pandemic, the housing scene morphed from a buyers’ market to a sellers’ market—and sometimes back again—with lightning speed. But as of about a year now, it’s not much of a market at all since the market went into a deep freeze with historically low levels of homes changing hands. Plus, mortgage rates hit their highest level for nearly 40 years and are set to stay “higher for longer.” That’s all led to what experts have called the “lock-in effect,” and it has resulted in gridlock for months on end.
But President Joe Biden wants to get things moving. “I know the cost of housing is so important to you,” Biden said during his State of the Union address last week. “If inflation keeps coming down, mortgage rates will come down as well. But I’m not waiting.” And he’s taking action, but will it be enough?
The White House is proposing some relief for homeowners: a one-year $10,000 tax credit for middle-class, starter-home residents who feel locked in to their low mortgage rates to move to a bigger home. By White House estimates, this should open up 3 million starter homes for those desperately trying to break into the housing market.
Along with the seller tax credit, Biden proposed a swath of housing-related programs including a first-generation down payment assistance program, housing voucher program expansion, and rental assistance for low-income households.
The White House spoke to Fortune after Biden’s address, with Deputy Treasury Secretary Adewale Adeyemo saying it bluntly: “We have a supply challenge in the economy. Since the financial crisis, we’ve built too little housing here in the United States.”
He was echoing the remarks of Fed chair Jerome Powell himself, who had recently testified to Congress about the economy and concluded, “The housing market is in a very challenging situation right now.”
So will Biden’s proposals move the needle?
Not everyone is convinced that the new seller-focused tax incentive proposal will have the desired effects of making housing attainable for lower-income families and younger generations. While $10,000 will be “nothing to sneeze at” for some families who will be forced to move this year regardless of home prices and mortgage rates, it likely won’t be enough to meaningfully move the needle on transaction activity, writes Bloomberg columnist Jonathan Levin.
“The so-called ‘mortgage lock-in’ effect for…
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