After the Great Recession in 2008 sent the housing industry into a tailspin, the Obama administration launched a tax credit for first-time homebuyers.
The plan was to motivate consumers to buy their first home by offering them a tax credit of $7,500 in 2008 and $8,000 in 2009 and 2010 via the Housing and Economic Recovery Act (HERA).
The credit expired a decade ago due to the terms of the legislation, but, now, President Joe Biden has floated a similar proposal, and researchers are examining what a refundable, advanceable tax credit of up to $15,000 for first-time homebuyers might mean to the market.
A Zillow study suggests the tax credit, on top of the American Rescue Plan, which has already been signed into law, "could catapult millions of renter households into first-time homeownership."
The research, available in full on Zillow.com, showed that a $15,000 tax credit could cover the entire down payment for homes in 40 of the 50 largest U.S. metros.
"Legislation that reduces barriers to homeownership could allow millions of renter households to finally enjoy the stability and wealth-building owning a home can provide," Zillow Economic Analyst Alexandra Lee said.
Considering the relatively low level at which renters are able to save, that $15,000 could push them as much as 14 years ahead toward home buying; it conceivably could cover the entire down payment.
"In 2020, a 3.5% down payment on a typical home sold was less than $15,000 in 40 out of the largest 50 U.S. metros. In 30 out of the largest 50 metros, even a 5% down payment on the typical U.S. home would be completely covered by a $15,000 tax credit," Zillow reported.
Still, a tax credit wouldn't fix all the obstacles that prevent homeownership—the study also revealed that those who already face such hardships—especially Black and Latinx potential homeowners, would benefit less than their White counterparts.
"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," Zillow's researchers noted. "Also, recipients could only benefit from the credit if enough homes at affordable price tiers are available on the market. Competition for homes remains fierce with homes selling at a historically fast pace. This strong demand, coupled with tight inventory, is contributing to rapidly rising prices, which could also inadvertently affect the utility of the tax credit for those who need it the most."