Kamala Harris announced her plan for the economy, which includes many incentives and disincentives for the real estate industry. Many of her points are actually designed to stimulate the real estate industry, which could benefit investors (although cause some unintended consequences to boot). For others, we’re in the crosshairs.

Let’s take a look at each one individually and how they’ll affect the economy, particularly the real estate industry. We’ll ignore proposals that don’t relate to real estate—for example, a “price-gouging ban” or limiting taxes on tips—and just focus on our industry.

Helping First-Time Homebuyers

Harris’s plan is to offer “…first-time homebuyers with $25,000 to help with the down payment on a new home.” This would be the most significant down payment assistance the government has ever offered and dwarves the $8,000 First-Time Homebuyer Tax Credit that was in place between 2008 and 2010. That also happened while we were in the middle of a deep recession and credit crunch, unlike today.

In 2020, there were 1,782,500 first-time homebuyers in the country. Had all of them used such an incentive, that would have cost the taxpayer a cool $44.6 billion.

Of course, not every first-time homebuyer would use it. But then again, with such an incentive in place, demand for first-time homebuyers would likely skyrocket.

FHA loans already only require 3.5% down to purchase a home. And Fannie Mae dropped its required down payment for multifamily properties where the owner lives in one unit to just 5% last November.

Indeed, with a 3.5% down payment, a house that costs $714,286 would conceivably have the down payment completely covered by this program. (And this ignores seller credits, which are commonly offered to homebuyers during negotiations.)

Affording the down payment is an issue for prospective homebuyers, but not the main one. One recent survey found 40% of non-homeowners said that their inability to afford a down payment was their main obstacle. But more (46%) cited insufficient income. Especially outside expensive coastal cities with almost comically bloated housing prices, the biggest issue for homebuyers isn’t the down payment—it’s affording the monthly mortgage payments, especially with interest rates where they are.

By throwing money at the demand side without addressing the supply side, the most likely result is just to increase the price of properties all the more, as prospective homebuyers with $25,000 in government money behind them bid up prices against each other. This will make the mortgage payments even less affordable. This program could certainly be beneficial for house hackers, but on a policy level, it’s likely throwing good money after bad.

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Continued Here: https://www.biggerpockets.com/blog/evaluating-kamala-harris-...

Andrew Syrios

Podcast Guest on Show #121

3 Votes