The plan is proving popular on both sides – but what does it mean for the US real estate market?

This month, Democratic presidential nominee Vice President Kamala Harris promised to provide first-time homebuyers with a $25,000 deposit to cover the downpayment on a house. According to Forbes, the support program will “provide working families that have paid rent on time for two years and are in the market for a home with up to $25,000 in down-payment assistance with more generous support for first-generation homeowners.”

It’s a bold plan – but one that’s seemingly popular, with The Wall Street Journal reporting that 80% of Democrats and even 20% of Republicans are in favour of it.

But what about the mortgage industry? Bradley Antonson, senior loan officer at Better, sees great potential in the introduction of Harris’s $25,000 Down Payment Assistance Plan – a real boost for first-time homebuyers.

“I think we’ll definitely see an increase in demand for home loans,” he said, pointing out that the down payment is often the biggest hurdle for many first-time buyers, even more so than debt-to-income ratios.

Because, for many aspiring homeowners, saving up for a down payment – often 3% or more – is what keeps them sidelined from the market. This proposed assistance plan, Antonson explained, would likely bring a wave of first-time homebuyers into the market, removing the down payment barrier and opening up opportunities for those who previously didn’t have the financial means to qualify.

“I do think that with this $25,000 assistance, we would see a huge influx of people who are ready to start their home-buying journey,” he added. “[However], I don’t know if the down payment assistance program that she’s proposing would necessarily have a direct impact on interest rates. The mortgage rates themselves are tied more directly to some of the macroeconomic factors, such as inflation.”

However, even without a direct correlation to mortgage rates, the ripple effect of Harris’s proposal would likely impact the housing market and the mortgage industry in significant ways. In particular, Antonson sees the potential for a broader group of homebuyers to enter the market because Harris’s proposal would be more widespread than current state-specific down payment assistance programs, such as California’s CalHFA.

“My understanding is that as long as you are a first-generation homebuyer, that would be the only requirement,” he explained, noting that it wouldn’t involve other typical qualifiers like income, assets, or credit history. This could make the plan accessible to a larger swath of the population compared to existing programs.

The prospect of Harris’s plan to build millions of homes by the end of her term also represents a significant opportunity for the mortgage industry. Antonson highlighted that the current housing market is marked by high demand but a limited supply, a situation that is driving up home prices.

“We have a lot of buyers who, if there were more homes on the market, would see an increase in market demand,” he said. If the housing supply were to increase by three million homes, Antonson believes it could create downward pressure on home prices, making them more affordable and drawing even more buyers into the market.

“I think that would probably drive down prices slightly,” he added, which could also attract buyers who are currently hesitant due to high prices and interest rates.

What’s more, the increase in home construction could be particularly impactful in areas like California, where home prices are notably higher than in other parts of the country. Antonson, who is based in the Los Angeles and Orange County area, notes that even starter homes in these regions are priced well beyond what many first-time buyers can afford.

“A two-bedroom, one-bathroom condo in Orange County or Los Angeles, you’re looking at $600,000 plus,” he said, comparing this to other areas of the country where similar properties might cost a fraction of that.

By Chris Davis. 12 Sep 2024