$15,000 Tax Credit Could Cover Entire Down Payment For Homes in 40 of the 50 Largest U.S Metros
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SEATTLE, March 16, 2021 /PRNewswire/ — A refundable, advanceable tax credit of up to $15,000 for first time homebuyers, similar to the one suggested by President Joe Biden, could catapult millions of renter households into first-time homeownership, a new Zillow® analysis suggests.


While Congress has already passed billions in aid over the past year to provide homeowner and renter relief, housing will remain a key area of focus through 2021 — especially as Congress continues to grapple with decreasing affordability.

Zillow research found that with a 3.5% down payment1 on a 30-year mortgage with a 3% interest rate, about 9.3 million renter households in the U.S. (27.4%) would spend less than a third of their income on  the monthly payment for the median home sold in their metro in 20202. An advanceable tax credit would remove for them what two thirds of renters cite as the single biggest barrier to homeownership — saving for a down payment. Other hurdles include qualifying for a mortgage and job security.

A tax credit could be even more beneficial to renters in relatively more affordable metros, like Pittsburgh (40.5% could afford a median mortgage), Cincinnati (39.7%), Cleveland (39.0%), and St. Louis (38.5%). Costly California metros like Los Angeles (10.1%) and San Jose (12.1%) have some of the smallest share of renters that could afford a mortgage, but the program would still significantly impact thousands in those regions.

“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,” said Zillow economic analyst Alexandra Lee.

Lawmakers have floated ideas surrounding the introduction of legislation that would create a refundable, advanceable tax credit of up to $15,000 for first time homebuyers, similar to first-time homebuyer credits approved by Congress during the Great Recession. Unlike those credits, the recently proposed advanceable tax credit could be used at the time of purchase, which could jumpstart potential homebuyers lacking down payment savings.

Nationally, renter households are estimated to save 2.4% of their income each year. At that rate it would take a typical renter about 14 years to save $15,000. Considering the low rates at which renters are able to save, a $15,000 advanceable credit could push them years ahead toward home buying, potentially covering 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.

However, such a tax credit could also have some unintended consequences.  Down payment assistance does not completely help those who face additional  hurdles to enter homeownership. Therefore, 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.  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.

Across the largest 50 U.S. metros, white renter households make up a significantly larger share of those that could afford the monthly mortgage payment. Asian households also fare relatively well — in almost all metros (48 of 50 largest) they make up a slightly larger share of potential buyers. Conversely, Black (49 of 50 metros) and Hispanic (42 of 50 metros) renter households make up a disproportionately smaller share of potential buyers.

“Policies targeting the systemic inequities in our financial system — including reforming the credit reporting system  — could help disadvantaged households get their foot in the door and close the racial homeownership gap,” said Lee.

Methodology

Renters household income data was sourced from 2019 1-Year American Community Survey microdata, accessed via IPUMS. Zillow calculated the monthly payment on the median home sale price across 2020, assuming a 3.5% down payment, a mortgage rate of 3%, a mortgage insurance premium of 0.7%, and including metro-level estimates of insurance and property tax rates.

Proportions of renters and potential buyers by race are compared in a two-proportion z-test. Only statistically significant differences at the 5% level are reported in the discussion of metros with disproportionate potential buyers by race.

About Zillow Group

Zillow Group, Inc. (NASDAQ: Z and ZG) is reimagining real estate to make it easier to unlock life’s next chapter.

As the most-visited real estate website in the U.S., Zillow® and its affiliates offer customers an on-demand experience for selling, buying, renting or financing with transparency and nearly seamless end-to-end service. Zillow Offers® buys and sells homes directly in dozens of markets across the country, allowing sellers control over their timeline. Zillow Home Loans™, our affiliate lender, provides our customers with an easy option to get pre-approved and secure financing for their next home purchase. Zillow recently launched Zillow Homes, Inc., a licensed brokerage entity, to streamline Zillow Offers transactions.

Zillow Group’s affiliates and subsidiaries include Zillow®, Zillow Offers®, Zillow Premier Agent®, Zillow Home Loans™, Zillow Closing Services™, Zillow Homes, Inc., Trulia®, Out East®, StreetEasy® and HotPads®. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org).

Proposed $15,000 Down Payment Assistance Tax Credit Impact on Renter Households *


Metropolitan

Area



(Table ordered

by market size)

3.5% Down

Payment on

Typical Home

Total Monthly

Mortgage

Payment On

Typical Home **

Share of

renters that

could afford

a monthly

mortgage

payment

Median

Annual

Income of

Renter

Households

New York, NY

$15,400

$2,612

22.4%

$57,300

Los Angeles-Long Beach-Anaheim, CA

$24,850

$3,671

10.1%

$58,000

Chicago, IL

$8,820

$1,621

33.0%

$46,000

Dallas-Fort Worth, TX

$10,080

$1,890

26.5%

$50,000

Philadelphia, PA

$8,855

$1,549

31.3%

$42,836

Houston, TX

$8,995

$1,715

27.4%

$45,331

Washington, DC

$15,225

$2,351

31.9%

$70,000

Miami-Fort Lauderdale, FL

$10,850

$1,854

25.0%

$45,071

Atlanta, GA

$9,205

$1,487

37.6%

$48,000

Boston, MA

$17,500

$2,831

18.1%

$59,000

San Francisco, CA

$30,625

$4,522

16.3%

$85,000

Detroit, MI

$6,825

$1,210

36.9%

$37,400

Riverside, CA

$14,245

$2,238

20.9%

$50,000

Phoenix, AZ

$10,973

$1,648

30.9%

$49,618

Seattle, WA

$18,725

$2,892

20.3%

$65,000

Minneapolis-St Paul, MN

$10,500

$1,761

27.1%

$46,200

San Diego, CA

$21,910

$3,268

12.8%

$60,891

St. Louis, MO

$6,755

$1,176

38.5%

$38,000

Tampa, FL

$8,698

$1,486

31.4%

$42,770

Baltimore, MD

$10,325

$1,645

33.7%

$48,446

Denver, CO

$15,750

$2,376

20.7%

$58,000

Pittsburgh, PA

$6,230

$1,104

40.5%

$38,466

Portland, OR

$14,963

$2,355

19.4%

$54,000

Charlotte, NC

$9,345

$1,477

35.6%

$46,000

Sacramento, CA

$15,768

$2,428

17.3%

$51,000

San Antonio, TX

$8,642

$1,587

27.3%

$42,803

Orlando, FL

$9,520

$1,585

30.3%

$45,710

Cincinnati, OH

$6,650

$1,153

39.7%

$39,349

Cleveland, OH

$5,425

$1,001

39.0%

$34,811

Kansas City, MO

$8,488

$1,471

31.4%

$43,200

Las Vegas, NV

$10,675

$1,619

30.6%

$46,000

Columbus, OH

$7,525

$1,356

35.5%

$44,400

Indianapolis, IN

$7,403

$1,212

36.6%

$40,000

San Jose, CA

$39,900

$5,827

12.1%

$97,821

Austin, TX

$12,250

$2,186

23.1%

$55,000

Virginia Beach, VA

$9,013

$1,428

38.9%

$46,865

Nashville, TN

$10,773

$1,680

26.7%

$47,163

Providence, RI

$10,990

$1,875

22.1%

$38,965

Milwaukee, WI

$7,175

$1,288

35.1%

$40,000

Jacksonville, FL

$8,855

$1,468

32.0%

$42,800

Memphis, TN

$6,592

$1,142

37.4%

$36,203

Oklahoma City, OK

$6,633

$1,165

37.3%

$38,000

Louisville-Jefferson County, KY

$7,000

$1,143

35.5%

$35,876

Hartford, CT

$8,575

$1,590

29.4%

$41,000

Richmond, VA

$9,450

$1,462

30.7%

$42,000

New Orleans, LA

$7,665

$1,281

34.2%

$37,000

Buffalo, NY

$6,125

$1,183

32.1%

$33,959

Raleigh, NC

$10,535

$1,656

27.9%

$44,600

Birmingham, AL

$7,175

$1,103

35.0%

$34,705

Salt Lake City, UT

$12,950

$1,936

24.5%

$50,001

* Data in chart assumes a 3.5% down payment

**Includes insurance and property tax.

1 the minimum required for an FHA-insured mortgage

2 Assuming no more than 30% of their income is spent on housing

SOURCE Zillow

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