Homeowners like MacKenzie Kipp, who took advantage of historically low mortgage rates during the pandemic, are facing a tough decision as President Joe Biden proposes a $10,000 tax credit for selling their starter homes. While the initiative aims to alleviate housing market tightness and aid homeowners in upgrading, many are skeptical about its financial implications./p>
President Biden took to Twitter on Thursday to announce the proposal, stating, "For homeowners looking for a new place but worried about giving up their lower mortgage rate, I'm proposing a $10,000 tax credit if they sell their starter homes." The plan aims to increase availability for first-time buyers while enabling current homeowners to transition to more suitable residences.
However, homeowners like MacKenzie Kipp are questioning the feasibility of the proposal. "I understand the intention behind Biden's proposal, but frankly, the math doesn't add up for me," Kipp expressed in a phone interview with Newsweek.
Illustrating the potential financial impact, Kipp highlighted a scenario where a homeowner opting for Biden's mortgage tax credit could end up paying hundreds of thousands more in interest over the life of a new mortgage compared to keeping their current low-rate mortgage.
This dilemma reflects what experts term the "lock-in" effect, as rising mortgage rates dissuade homeowners from selling, fearing the loss of a low-rate mortgage for higher rates. According to the Federal Housing Finance Agency (FHFA), this effect has led to a significant reduction in home sales and inflated prices.
The FHFA's report revealed that the lock-in effect has caused a 57 percent decrease in home sales involving fixed-rate mortgages, preventing over 1.3 million sales between the second quarter of 2022 and the fourth quarter of 2023. Consequently, home prices have surged by 5.7 percent due to constrained supply.
Despite these challenges, there remains demand in the housing market. The recent National Association of Realtors report indicated a 9.5 percent increase in existing-home sales last month, marking the largest monthly rise in a year. However, year-over-year sales still dipped by 3.3 percent, signaling some potential buyers remaining on the sidelines
As President Biden's mortgage tax proposal garners attention and scrutiny, homeowners like MacKenzie Kipp are left weighing the financial implications against the promised benefits, highlighting the complexity of navigating the current housing landscape amidst rising mortgage rates.