Now we're talking about the $15,000 tax credit for first-time homebuyers that the Biden administration is proposing. So, currently, it looks like Biden is the projected winner of the 2020 election. So they've, put their administration has put out a tax plan, actually an entire housing plan. I'm going to walk you through what we know about it so far.
So the Biden administration is proposing a $640 billion fund for housing over the next 10 years. So what this fund is aiming to do is take care of four main things.
Number one is redlining. So there, they're looking to put money in to remove a lot of the predatory practices that are still going on in the real estate industry.
They also want to increase supply so 300 billion of the 640 billion is going just towards increasing supply which is huge because we have super limited supply right now, which is causing home prices to skyrocket. So hopefully having this housing bill will actually help increase supply and lower the cost of homes.
Also increasing energy efficiency and affordable housing, and part of that affordable housing is increasing the supply as well. They've also talked about increasing low-income housing and subsidies like that as well.
Now, some of the details are a little bit hazy as, since these are just kind of a general proposal that the administration has put out, but an interesting approach at least to see what's the potential for the next four years, if Biden is confirmed as the 2020 president.
So here's what we know so far. What the Biden administration has said is that they'll give a $15,000 up to a $15,000, a tax credit for first-time homebuyers. The details are a little bit hazy. This is just because it's a proposal of a transitioning administration. But, the keyword here is they said "up to", so we're not entirely sure it's going to be $15,000 or what kind of limit is going to happen.
After the housing crash in the Bush administration, there was a $7,500 tax credit that was given. Okay. and it was actually 10% of the purchase price up to $7,500, the Obama administration bumped that up to $8,000. So now we're seeing the Biden administration coming in and saying $15,000.
Now again, there are no clear details on who's eligible. If it's only for first-time home buyers, if there's a percentage included with this, it's really hazy and they haven't ironed that out yet.
But a key detail here that has been explained is that in the Bush administration, this tax credit was only given at tax filing. So for instance, if you purchased a home in April, you wouldn't see that tax credit until you filed your taxes at the end of the year. So you would've had to get that money upfront and then receive the credit later.
But in the Biden administration, they have projected, that they'll actually make those funds available at the time of purchase. So you'd have those funds available when you actually purchase the home. And with this, this is huge because you're not fronting the money because it almost doesn't make sense if you're giving somebody a credit. Because they need money for a down payment and closing costs, but you're expecting them to front it and then you're going to give them that money back later, most people don't have that money available. So this money could be really helpful in stimulating the economy.
Now, the difficult part here is this would not do very well in our current market. See, the huge problem with this is it could cause home prices to skyrocket. The reason why is because this is an incentive for more buyers to come to the market home prices are already crazy high and the market's really competitive. We're in a seller's market because we have low inventory. So very few homes and a lot of buyers. So attracting more buyers with a tax credit is not the smartest move.
So here's my anticipation. I anticipate the Biden administration is expecting a correction, a market correction in the next four years.
We've talked about this on the channel before that in the chart we can see that the blue line is average rent affordability, and the red is home affordability. So there's this huge spread. This 31% spread between affordability. Over the next four years, we anticipate a correction, right?
Housing markets and all markets, in general, go up and go down and go up and go down. So since we're at the height here, we expect somewhere over the next four years for this to trail back down. My anticipation is that the Biden administration probably has this $15,000 tax credit, not to put out in the beginning, but possibly to put out maybe year three or year four, when we see buyer demand to start slow down. Then they can put the tax credit out, to stimulate demand a little bit more. That's my assumption. I'm not an economist, but that's what I'm guessing they're using or wanting to propose this $15,000 for, but it's all wrapped up into this, this package that they have, that's $640 billion going to all different aspects of housing.
So we'll see if this pans out if this is something that's going to come to fruition. Right now it's just talking. It's just the proposal by the Biden administration.
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