Biden’s Home Purchase Credit

Good morning everyone!

Following yesterday’s volatility, the S&P is down over a half a point – largely led by losses in many of the “stay at home stocks” that were hit following yesterday’s promising news regarding Pfizer’s 90% effective Covid vaccine. We expect to see more volatility in the short term as additional news comes out on Pfizer’s vaccine as well as other companies that are in the vaccine race. Moderna is one who will be releasing results from their final stage of clinical testing in the middle of November who’s market impact could mirror Pfizer’s.

Now that President Elect Biden is set to take office in January, we need to address his tax plan that is dominating the news again. This plan includes a credit of $15k for home buyers. This sounds like a great deal of stimulus that would be great for the economy on a surface level; however, it is important to consider the state that our market is in. Given that the US already has a housing shortage, the median age for first time homebuyers is dropping across the country, and we have seen home appreciation unlike any year since preceding the Great Recession – we see this credit further inflating the housing market. Similar to how home appreciation rises when rates drop because people can now afford a more expensive house, this bill will push peoples ability to afford homes up with a seeming disregard for inflation.  The last time the US gave a credit for home purchases, the market flooded with buyers, inflated the market and then left a hole which led to a worse housing market than when the credit was initiated. Hopefully Biden’s administration will look back 10 year and ensure they hedge against this risk.

Mortgage backed securities are down again today after yesterdays large loss. They fell below their 100 DMA and are now stuck between their 25 and 200 DMA. Ten year bonds have potential on the upside in the near future which would push mortgage rates higher. Like yesterday, we recommend to lock unless you are able to monitor the market.