Janet Yellen Says It's 'Almost Impossible' For First-Time Homebuyers To Enter Housing Market

Mortgage rates have been so low for so long that it's created a lock-in effect where people don't want to sell their homes to buy new ones for fear of losing their attractive rates.

That's made it "almost impossible" for first-time homebuyers to enter the housing market, U.S. Treasury Secretary Janet Yellen said during her testimony before the House Ways and Means Committee.

"With house prices having gone up and now with much higher interest and mortgage rates, it's almost impossible for first-time buyers," Yellen said.

President Joe Biden has proposed a pair of tax credits to help solve the housing crisis. The first proposed tax credit would provide $10,000 to first-time homebuyers. A separate $10,000 tax credit is proposed for homeowners who sell their "starter home" to move into a bigger house.

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"We know that affordable housing and starter homes are an area where we really need to do a lot to increase availability," Yellen said.

In 550 American cities, median home prices have reached $1 million, according to a recent report from Zillow. California tops the list with 210 cities — mainly around Los Angeles and San Francisco — having million-dollar home values.

Part of the problem is that investors have been snapping up America's affordable housing, purchasing 26% of the stock in the fourth quarter of 2023, according to a Redfin report. That's not only a record — it also represents a 24% increase in investor purchasing activity over the previous year.

Some lawmakers are looking for ways to deter the practice. Last July, U.S. Senators Sherrod Brown, D-Ohio, and Ron Wyden, D-Oregon, proposed legislation aimed at curbing tax benefits for corporate investors that engage in the acquisition of residential properties, which can lead to elevated housing costs and rental rates. 

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The Stop Predatory Investing Act seeks to prevent investors that amass 50 or more single-family rental homes from claiming deductions on interest or depreciation related to those properties.

Another bill — the End Hedge Fund Control of American Homes Act — would prohibit hedge funds from owning residential properties and mandate the sale of at least 10% of their total single-family home inventory to families per year over the next decade.

The legislation would impose a $50,000 tax penalty per year on hedge funds for each property owned beyond zero or a scheduled 10% reduction per year over the 10-year period. It would charge a 50% tax on the fair market value of future single-family home acquisitions by hedge funds.

"The housing in our neighborhoods should be homes for people, not profit centers for Wall Street, U.S. Senator Jeff Merkley, D-Oregon, said in a statement. "Yet, in every corner of the country, giant financial corporations are buying up housing and driving up both rents and home prices. It's time for Congress to put in place commonsense guardrails that ensure all families have a fair chance to buy or rent a decent home in their community at a price they can afford."

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