$15,000 Proposed Tax Credit Could Help 31% of Metro Phoenix Renters buy a Home

Article originally posted on AZ Central on March 23, 2021

A proposed $15,000 federal tax credit for homebuyers could be enough to help almost a third of metro Phoenix renters afford a house of their own.

A proposed $15,000 federal tax credit for homebuyers could be enough to help almost one-third of metro Phoenix renters afford a house of their own.

A new analysis says the first-time homebuyer credit, currently proposed by President Biden and other lawmakers, would more than cover a 3.5% down payment on a median priced Valley home, according to Zillow.

FHA loans for mostly first-time buyers require as little as 3.5% of the purchase price down. Those loans also require mortgage insurance, which adds to a monthly payment.

But Zillow’s analysis found the average payment on one of those loans for a median-priced Valley home, including that insurance and property taxes, is less than what it costs to lease a home or condominium.

Of course, Phoenix-area home buyers would need to find a house to buy first. The supply of Valley houses for sale continues to drop as both demand and prices climb.

Helping renters buy

Zillow found a 3.5% down payment on a typical metro Phoenix house costing about $313,000 is $10,975, so a $15,000 tax credit would be more than enough to cover the entire minimum down payment. But that was the median price for 2020, and home prices are climbing fast in the Valley.

  • The total monthly mortgage payment on a home in the price range that Zillow used for 2020, including insurance and property, tax is $1,650.
  • The median lease rate for houses and condos in the now is Valley is $1,755, according to the Arizona Reginal Multiple Listing Service.
  • The median annual income of a renter household in the Phoenix area is $49,615, according to the Census.
  • Based on rental incomes and housing costs, about 31% of metro Phoenix enters could afford a $1,650 monthly mortgage payment.

Nationally, with a 3.5% down payment, about 9.3 million renter households, or 27.4% of all tenants, could reasonably afford the monthly mortgage payment on the median home in their metro.

Down payment biggest hurdle

Surveys show saving for a down payment is the biggest problem renters have when trying to buy.

About 37% of potential first-time buyers said their biggest issue to buying their own home was saving enough for a down payment, according to NerdWallet.

Nationally, renters save an average of 2.4% of their income per year. At that rate it would take a typical renter about 14 years to save $15,000, according to Zillow’s report.

Proposals for the new homebuyer tax credit call for providing $15,000 to buyers when they close on a home to cover costs upfront.

Past tax credits from the recession allowed homebuyers to get a credit of $7,000 to $8,000 on their taxes, so there was a delay in getting the incentive.

But the downside of the tax credit for metro Phoenix home buyers would be the boost it gives the area’s already hot housing market.

Fewer homes for sale and more rapidly rising home prices will then mean fewer renters will be able to afford to buy, even with $15,000.