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Mortgage Rates Rise Yet Again—Does That Mean Home Prices Might Fall?

President Joe Biden is addressing the nation’s housing crisis by creating financial incentives to get more homes onto the market and by helping homebuyers to afford them.

Biden submitted his budget for fiscal year 2025 to Congress at noon on Monday. Some highlights include raising taxes for corporations and the wealthy, extending tax cuts for most Americans—and jump-starting the housing market.

“For too many hardworking families, it costs too much to find a good home, so we are working to lower costs and boost supply of housing nationwide,” Biden wrote in the Budget Message of the President.

However, the budget must be approved by Congress. It is unlikely to pass it as is.

The budget was unveiled on the same day it was announced that Marcia Fudge, secretary of the Department of Housing and Urban Development, would be stepping down next week. Deputy Secretary Adrianne Todman will become the acting secretary of HUD.

“Over the past three years she has been a strong voice for expanding efforts to build generational wealth through homeownership and lowering costs and promoting fairness for America’s renters,” Biden said in a statement.

What would Biden’s 2025 budget mean for the housing market?

The budget requests $72.6 billion for HUD. It includes a Mortgage Relief tax credit, which would provide middle-class homebuyers up to $10,000 over two years to help with the high costs of homeownership.

To increase the number of homes for sale, Biden’s budget would also offer middle-class homeowners a tax credit of up to $10,000 if they sell their starter homes to a new owner-occupant (which would exclude investors). The homes also have to be at or below the area’s median home price.

It would also put $10 billion in funding aside to offer down payment assistance to first-generation homebuyers.

“It’s an attempt to put together a coherent housing policy for the first time in a long time,” says Laurie Goodman, a fellow at the Urban Institute. “They’re trying to lower housing costs through a lot of different measures, including unlocking supply, adding additional supply, and increasing affordability.”

However, the budget also has its share of critics.

“These programs don’t work,” says Ed Pinto, co-director of the Housing Center at the American Enterprise Institute. It is a conservative-leaning think tank.

He took aim at the Mortgage Relief credit, which would provide a tax credit for middle-class homebuyers. He believes it could make housing even more unaffordable as it will bring more buyers into the market during a housing shortage.

It “is going to have tremendous unintended consequences,” says Pinto. “That will increase demand. We have an inadequate supply of housing. Economics 101 says if you increase demand against a fixed supply, you’ll have higher prices.”

He also wasn’t convinced the tax credit for homeowners would be enough for many to give up their ultralow mortgage rates. If they sell their homes and buy new ones with mortgages, they’re going to be saddled with higher mortgage rates.

“I’m not sure it’s going to bring a lot of people off the sidelines to sell their house,” says Pinto.

What would Biden’s 2025 budget mean for renters and new construction?

The budget would also fund programs that would result in the construction of new housing.(Nathan Howard/Bloomberg via Getty Images)

The poorest renters would receive some additional help if this budget is passed. The budget would support 20,000 new households receiving housing assistance, especially the homeless and those escaping domestic and gender-based violence.

A housing voucher program would be created to help youth aging out of foster care and expand assistance provided to extremely low-income veterans.

“My Budget will expand rental assistance to hundreds of thousands of additional families, continuing the largest expansion in 20 years,” Biden wrote in the Budget Message.

The budget would also fund programs that would result in the construction of new housing.

About $1.3 billion would go into the HOME Investment Partnerships Program to build and rehab affordable rentals and homes for sale.

It would also set aside $20 billion for a new Innovation Fund for Housing Expansion. The program would award grants to municipalities and others that create plans for expanding the available supply of housing. More money would be available for housing affordability pilots.

In addition, the budget would set aside $4.1 billion to help reduce high home heating and water costs, through home energy and weatherization assistance. States would also be able to use some of the money to help low-income households with their water bills.

Money would also go toward providing homeless assistance grants, reducing lead-based paint and other health hazards in homes, providing assistance to those facing eviction, expanding affordable housing in tribal communities, and enforcing fair housing laws, among other things.

“The most important thing is this elevates the issues of housing affordability and supply to the top of the queue,” says Goodman. “It focuses the discussion on the housing issues that matter.”

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