First-time homebuyers might get help saving for their down payments through new state legislation.
A bill in the Legislature, if passed into law, would let residents save for down payments on their first homes with special tax-deductible accounts. The legislation is similar to what some other states have approved in recent years to help stimulate their housing markets and promote home ownership. Still, some housing experts question how much help the bill would provide in the area, given the high availability of loans, the relatively low amount of affordable housing and many younger and low-income residents’ inability to save much money at all.
The bill would provide an income tax deduction of up to $6,000 for individuals and up to $12,000 for joint accounts for a period of five years.
Iowa, Minnesota and Mississippi passed similar savings account bills last year. Other states have also passed similar bills in recent years.
“We’re only about the seventh state looking at this tax savings account legislation for first-time homebuyers,” said K.C. Conway, head of research for the Alabama Center for Real Estate. “And there’s some real meat on the bone of this bill unlike some others, like Minnesota’s, which only lets you deduct tax off interest gained from the savings accounts.”
Jeremy Walker, CEO of the Alabama Association of Realtors, said the idea of the bill is to help both low-income residents and younger millennials buy their first homes.
“There are renters, particularly millennials, who have struggled with student loan debt ... this bill can help them take that leap into their first home,” Walker said.
A recent Alabama Association of Realtors-commissioned study estimates 0.2 percent of eligible residents would use the savings accounts and that the program would raise sales by 130 homes a year in the state. Also, the savings program would generate about $26.8 million annually in economic activity, spurred by increased home purchases, the study estimates.
Some Calhoun County real estate experts aren’t yet convinced such a program would benefit the area much.
“My very first thought is that many first-time homebuyers don’t have money ... where are they going to get the money to save,” said Everett King of ERA King Real Estate in Anniston.
King said many younger first-time homebuyers aren’t going to wait the two to three years it would take to save enough money for a down payment, especially when there are various programs readily available, such as Federal Housing Authority and U.S. Department of Agriculture housing loans. The FHA offers loans with low down payments of 3.5 percent, while the USDA offers zero-down-payment loans.
Joey Crews of Keller Williams Realty in Anniston, also said he didn’t see much benefit from the special savings accounts when there are many loan options.
“There are loan programs that have zero percent down payments, so if you’ve got a zero percent down payment, what’s the point of doing the savings account,” Crews said. “Credit qualifying is more of a problem than getting money for a down payment.”
David Dethrage, owner of Home Realty Co. in Oxford, said that any government attempt to encourage home ownership should be applauded. However, the incentives from tax deductions might still not be enough to entice more people to buy homes, Dethrage said.
“The real challenge is for people to position themselves to obtain a home mortgage,” Dethrage said. “For that you need a well-paying job with stability, a good credit rating and a low enough debt-to-income ratio.”
According to a recent study from the Urban Institute, a Washington D.C.-based economic policy think tank, 53 percent of American renters said they couldn’t afford the down payment for a home.
U.S. Census data shows there are 13,964 renter-occupied and 31,107 owner occupied properties in Calhoun County.
“Over two-thirds of renters spend 60 percent of their take home pay on rent,” Conway said. “So there’s not much for them to save.”
Conway added that there is a shortage of affordable housing in Alabama and across the country, which could also limit the benefits of first-time home buyer savings accounts. Conway said that after the housing market crash in 2008, many builders switched to making bigger, more expensive houses for the second-home market.
“After the crisis, there wasn’t a lot of profit in entry-level homes,” Conway said. “We need to look at how do we provide more affordable rental housing and entry-level housing, and what do we do with millennials who still have student loan debt.”