Biden Addresses Housing Crisis In State Of The Union

President Biden used the State of the Union address Thursday to tackle the nation’s housing crisis and propose big plans to boost activity.

“I know the cost of housing is so important to you. If inflation keeps coming down, mortgage rates will come down as well. But I’m not waiting,” he said in the address.

The administration proposed a mortgage relief plan providing first-time homebuyers an annual credit of $5,000 for two years, effectively a $10,000 mortgage rate buydown that would save as much money as a 1.5% rate reduction.

Another credit, aimed at current homeowners, would offer a one-year, $10,000 credit to families who sell their starter homes, helping to turn inventory over.

More than 3.5 million middle-class buyers would benefit from the credits, spurring greater housing activity, according to the White House.

He further asked Congress to pass legislation he says will encourage the renovation and construction of 2 million new homes, addressing crippling inventory shortages.

Biden added that his administration would eliminate title insurance fees for federally-backed mortgages and target “big landlords who break antitrust laws by price-fixing and driving up rents.”

Rents are currently 30% higher than before than pandemic, though they show signs of slow cooling.

These proposals need Congressional action to pass and analysts appear to be split on their viability.

“This plan is the most consequential set of housing recommendations in a State of a Union in over 50 years, and I say that because I’ve looked them all up,” David Dworkin, president and CEO of the National Housing Conference, said in a statement.

But dissenters say creating more demand will only exacerbate the problem until more inventory is available.

“This would probably have very limited impact on housing prices — increasing the number of buyers will, generally speaking, increase home prices for everyone. It’s pretty straightforward,” Kyle Pomerleau, senior fellow at the American Enterprise Institute, said.

Though the White House’s plans may help buyers with the rate element of purchasing a home, they may not do enough in other areas. Limited inventory remains the biggest problem for prospective homebuyers. Stock is way down compared to pre-pandemic levels, and builders can’t build fast enough to keep up with demand. Competition for the few houses available keeps prices at record highs.

Regarding the plan to turn over starter homes, the question becomes: where will sellers move when they sell their starter homes? More empty-nesting Baby Boomers own large homes than families with children, and they want to keep their houses to age in place.