As a new administration is sworn in, full Democratic control in Washington is likely to result in significant policy changes in a number of areas, especially for homeowners. Some of the changes could include expanded foreclosure protection and a longer forbearance allowance for homeowners struggling to meet their mortgage payments.
President Biden has directed federal agencies that back mortgages to extend forbearance and foreclosure protections for borrowers through the end of March.
Everyone from current mortgage holders to prospective homebuyers and renters are likely to see some benefit from president-elect Biden’s proposals, if enacted. Here’s a preview of what to expect.
Extension of forbearance protections
With many workers facing precarious employment situations as a result of the coronavirus pandemic, the government in March passed a forbearance policy that allowed homeowners with mortgages held by Fannie Mae and Freddie Mac to pause their payments for up to 360 days.
Many private lenders voluntarily adopted similar policies, all aimed at helping homeowners avoid foreclosure even if they were struggling to meet their mortgage payments.
Lawrence Yun, chief economist at the National Association of Realtors, said Biden’s administration is likely to extend these protections.
“March is the current deadline for the mortgage forbearance period and it’s very doubtful that either the virus situation or the employment condition will be normal,” he said, explaining that the first applicants under the original forbearance policy will reach 360 days in March. “I think that the mortgage forbearance period is going to be stretched out.”
If you’re struggling to meet your mortgage payment, you should get in touch with your lender. You can read more from Bankrate on how mortgage forbearance works, and should keep in mind that you will eventually need to make up your missed payments, though they can usually be added to your mortgage balance rather than paid back in a lump sum. Forbearance does not cancel any portion of your debt.
First-time buyer tax credit and student loan relief
Prospective homebuyers are likely to see some benefits from the new administration as well.
Biden has proposed two policies that Yun said will be especially helpful to new homebuyers. The first is a $15,000 tax credit for first-time homebuyers that can be applied to your down payment or closing costs. The second is student loan forgiveness, though the amounts have not yet been set and congressional action may be needed.
Although not specifically meant as a housing policy, Yun said student debt is a major barrier for many first-time buyers, so reducing that burden will help people get into their own homes faster.
The coronavirus-fueled trend of more people working from home means the tax credit is especially well-positioned to pack an extra punch.
“If the first-time buyer is facing sticker shock, one way to avoid the rise in prices is to go into the outlying regions, second ring suburbs or small towns where home prices are very affordable,” Yun said. “The $15,000 tax credit will carry more weight by going into more affordable regions, and that may be possible for more people given the work from home phenomenon that is developing.”
Rising property values
This is great for current homeowners but not so much for prospective buyers.
Yun explained that the policies meant to help homebuyers are sure to stimulate demand, which means real estate prices are likely to go up even more than the 12 percent they did nationally in the third quarter of 2020 compared to Q3 2019, according to NAR. Rising prices will be further fueled by low housing supply and an already-competitive market.
“Anytime demand is stimulated, it’s going to push up prices,” he said. “For homeowners it is good news. Whether they realize it or not, it means even faster strengthening in home prices, and most homeowners have their wealth tied to their housing.”
For buyers though, rising prices may mean it takes longer to save up for a down payment and mortgage balances will be higher.
“The only problem is the home prices they will be facing will lead to some sticker shock when there is more competition,” Yun said. “A current renter who is contemplating buying a home” may meet all of the qualifications to get a mortgage, but may still struggle to fund their down payment as prices keep rising.
Boosting affordable housing
Another thing that may help homebuyers is Biden’s commitment to the construction of more affordable housing. A major factor driving up real estate prices, Yun said, is limited availability of homes on the market. New development will ease some of that pressure by making more housing available across the price spectrum.
“Spending more money to build affordable housing, whether that’s for rental housing or through subsidy, that will lead to more opportunities for first-time buyers,” he said. “We need to increase supply to moderate home price growth.”
Biden has pledged $100 billion in funding for affordable housing.
More stimulus and changes to SALT
Homeowners also stand to benefit from general stimulus payments and — in some areas — possible changes to the state and local tax (SALT) deduction policy, which we’ll cover below
Upping the stimulus payments from $600 to $2,000 will give homeowners a little more wiggle room in their budgets, which will help keep their housing situation more secure as the pandemic continues.
“The short term goal is trying to get the economy back on track and more robust expansion,” Yun said. “That is a positive in the short term for housing given the better job market outlook.”
Longer term, changes to the SALT deduction could benefit homeowners in more expensive states like California, Connecticut, New Jersey and New York, where more state and local tax payments would again be deductible.
Currently SALT deductions are capped at $10,000 annually for most taxpayers, which places a higher burden on those living in these more expensive areas. Yun said it’s possible that this cap could be lifted under the new administration. The limit is scheduled to expire Dec. 31, 2025
President-elect Biden has made big promises around housing policy, and if his agenda is enacted, homeowners and prospective homebuyers should all see some benefits.
In the near term, the focus is likely to be on keeping the housing market stable through the coronavirus pandemic and avoiding foreclosures. Farther down the road, a number of financial policies are on offer that should promote higher homeownership rates.