First-time homebuyer credit could bring 9.3M renters into the market

The Biden administration’s plan for a first-time homebuyer tax credit could boost homeownership potential in most large metropolitan areas, according to a study Zillow released Tuesday.

In 40 out of the 50 biggest metros, an average 27.4% of renters could afford a monthly payment equal to one-third of their income for a local median-priced home if they received a credit of up to $15,000 for a down payment.

The finding, which is based on an analysis of the amount of renters who would be able to obtain a 30-year Federal Housing Administration loan with a 3% interest rate and 3.5% down, could help lenders that are looking to offset waning refinancing with more purchase activity find more borrowers. The credit could open homeownership up to as many as 9.3 million, according to Zillow.

Renters generally save an estimated 2.4% of their income yearly, so it would typically take 14 years to save for $15,000 for a down payment, according to the study.

A tax credit would do the most for more affordable markets like Pittsburgh, where 40% could attain a median mortgage with it. In a more costly market such as Los Angeles, only 10.1% of renters would theoretically be able to buy a home using an FHA loan.

Because the shortage of affordable housing and credit score eligibility could be issues in qualifying, there may be some unintended consequences. Credit availability has generally been relatively tighter during the pandemic.

“Even though a tax credit for first-time homebuyers would likely stimulate minority homeownership, it could still disproportionately benefit white and Asian Americans who are better positioned to buy because of better access to credit and higher incomes,” Alexandra Lee, an economic analyst at Zillow, said in a press release.

Temporary homebuyer tax credits that Congress passed during the Great Recession increased housing activity in the short term but did not have a lasting effect on the market, most studies show. If a similar Biden tax credit moves forward, the result may be the same.