$15,000 Tax Credit Could Cover Entire Down Payment For Homes in 40 of the 50 Largest U.S Metros

If passed, first-time homebuyer tax credit could push some renters 14 years ahead toward homeownership

- 9.3 million (27.4% of) renter households could afford the monthly payment for a median-valued home sold in their metro.

- Two-thirds of renters cited saving for a down payment as the biggest hurdle to buying a home.

- Racial inequities in income place Black and Latinx households at a disadvantage in utilizing this tax credit.

News provided by

Zillow

Mar 16, 2021, 05:30 ET

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.

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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 2020^2. 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.

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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