In an opinion piece that came out this week in the Wall Street Journal the author argued that Kamala Harris’ housing plan would lead to more shortages and higher prices. The line of reasoning makes some economic sense at face value. The $25,000 down payment assistance for first time home buyers will boost demand, which in turn will cause higher prices because more people will be competing for a limited inventory supply. More people will be able to afford homes which is a good thing, but more people will miss out as well which is bad. However, Kamala is also proposing building 3 million new homes, which will help with our supply problem, but realistically it might be only a drop in a pretty dry inventory bucket.
Here’s the thing though, as a Realtor I know one of the greatest barriers to entry in buying a home is coming up with the down payment. So yes, Kamala’s plan will increase demand, on the lower end of the market, and likely prices will go up but what else is new? Prices will always go up in the long run, that train has left the station: it's kind of in our capitalistic fabric. Why not make owning a home more attainable for people who otherwise wouldn’t be able to come up with a down payment? It’s a win for home buyers, sellers and our economy.
This dynamic reminds me of when the housing market crashed from the Great Recession. At the time I was watching demand fall first from the highest priced homes, and over time cascading to the lower priced homes which brought the whole market down. This is the exact opposite: demand will increase in the lower priced homes and should ripple upwards in the market. The housing market is a major driver of the US economy, contributing 17.6% to the GDP, and creating more demand will be a great boost to our economy. So yeah, I like this idea a lot. Above all else, it’s going to give deserving people (they make enough money to afford a mortgage, but they just can’t save for the down payment) a shot who otherwise would not be able to realize the American dream and wealth creation vehicle of home ownership. The only note of caution I want to sound here to Congress if this comes to pass. Don’t pull this rug out from under the American people if the housing market starts to slow down. The resulting drop in first time home buyer demand could be brutal for the lower end of the market and the overall economy.
*** Thank you for reading my blog! If you or any of your friends and family ever have any real estate questions, please feel free to contact me at andyfalk2112@yahoo.com or 415-250-8025. I’m always happy to help!