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  • Writer's pictureNancy Bennett

MARKET UPDATE: State of the Union - Biden Addresses the Housing Shortage

I’m not sure if you watched the State of the Union speech that President Biden gave last night, but one of the area’s he touched on was housing. I found this interesting article from Bryan Mena and Anna Bahney at CNN this morning.

It’s a well-known fact that housing of any type (rental or purchase) is very expensive right now.

“Americans are in the throes of the worst housing affordability crisis in decades. Baby Boomers aren’t parting with their homes, insurance costs are skyrocketing, mortgage rates are sky-high and half of renters say they can’t afford their monthly payment. Some have given up on ever owning a home.”

According to these authors: “Rent is 30% higher today than it was before the pandemic, and home prices are now more than 40% higher.”

President has a few suggestions

With approval, the president has offered a few solutions. Experts may not agree that it’s enough to get the market moving as Americans are feeling the effects of inflation, in addition to the higher cost of keeping a roof over their head.

Here are some of his suggestions: 

  1. Tax credits - $10,000 refund for middle-class buyers

  2. Tax credit – $10,000 one time credit aimed at middle class homeowners who want to move up 

  3. I also heard him say something about a $400/month subsidy to ease payments for home owners. (Don’t quote me on this, and it’s not addressed in this article, so I have to do some more research.)

The housing industry disagrees

Others in the housing industry disagree, saying individual tax credits that promote more demand for housing and place limits on closing costs would further increase home prices and the cost of credit.

“Simply put, demand continues to outpace supply; and subsidizing more demand inflates house prices,” said Ed DeMarco, president of the Housing Policy Council, a trade association of lenders, insurers and data companies in the housing industry.

Influencing borrowing costs is the Fed’s main tool — but it only functions on the demand side. So, when inflation is too high, the only thing the Fed can do is jack up interest rates to slow demand. Powell said that means there’s nothing the Fed can do to address the under-supply of housing.

IMHO, we still have a supply and demand issue. The number of homes for sale in the Bay Area/Contra Costa county is well below where we need to be. And demand is waning too, as the cost of home ownership continues to increase in addition to the current cost of living. People aren’t moving like they have in years past, and maybe that’s the smart thing to do right now. Just sit tight?

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