If you’re in the market for a house, you know that times are tough. Even though sales are slowing prices remain at an all-time high. With the recent passage of President Biden’s Inflation Reduction Act, many first-time home buyers were optimistic that this bill might help lower housing costs. But, exactly what’s included in the Inflation Reduction Act? And how does it benefit home buyers, homeowners, and real estate investors?
If you want to learn the answer to these questions, and more, then you’re in the right place. In this guide, we’ll break down everything that’s happening in the housing market right now and whether this new law affects it.
Before we dive into whether or not the Inflation Reduction Act affects housing costs it’s important first to understand why they’re rising. You’ve probably heard that there’s currently more demand than supply in the housing market.
There are two reasons for this. First, pandemic-related restrictions delayed the construction of many new homes for months or even years. Second, supply chain issues and inflation have made it more expensive to build new homes.
Specifically, the cost of lumber, iron, and steel has all gone up. And it’s not just home buyers that are feeling the housing costs.
Rental prices have been steadily increasing year after year as well. When you couple this with the fact that many people work at home now and need space, then you get rising housing costs.
The Inflation Reduction Act is an ambitious piece of legislation that was recently passed by President Biden and Democrats in Congress. As the name suggests, the purpose of the bill is to reduce both inflation and the deficit.
However, that’s not the only thing that the Inflation Reduction Act brings to the table. It also seeks to lower costs for families, address the climate change crisis, and hold corporations more accountable when tax season rolls around.
You can break down the spending from the bill into eight different areas. They include:
If you want to learn more about these areas and the money going to them, you can explore this resource here. Now, let’s move on to how the Inflation Reduction Act will affect the real estate market and who will benefit from it.
At first glance, it might not look like the Inflation Reduction Act benefits anyone in the real estate market. But, there are some definite winners and losers when it comes to who benefits from lower housing-related costs.
The winners: people who already own homes and real estate investors. Specifically, these two categories benefit from a variety of tax incentives geared toward people who own homes or properties.
By making it more affordable to take on both small and large green investment projects, the government hopes to increase our reliance on clean energy.
We’ll discuss where home buyers land in the midst of this. But, for now, let’s explore the different real estate-related tax incentives that homeowners and real estate investors can benefit from.
Have you been wanting to make some big upgrades to your house? If so, now is the time to do it. When tax season rolls around the Inflation Reduction Act allows homeowners to claim either $1,200 per year or 30% of the costs related to eco-friendly house upgrades.
On top of that, you can get a tax rebate of up to $14,000 on these types of upgrades as well. There are many different upgrades you can consider. Some of the popular ones include:
In addition to these big projects, you can also consider smaller ones, like solar panel outdoor lights, smart plugs, and low-flow shower heads.
Remember that it’s rare to see federal bills specifically target home renovation like this. So, it’s worth taking advantage of.
If you own a multi-family building or commercial building, then you can benefit from the IRA’s revamp of Section 179D of the tax code. The idea here is that real estate investors can deduct a large cost of the asset if they purchase an energy-efficient building or retrofit an old building with energy upgrades.
You can deduct the lesser of either the cost of the retrofit or the calculations complex formula. You must need tax experts to make this happen, as well as engineers to certify the energy-saving amounts.
The legislation also extends the commercial solar panel credit. That means that you can deduct 30% of whatever the solar system costs your business.
Next, if you own a parking lot in either a rural or low-income area, then you can take advantage of an electric vehicle charger credit. With this portion, the IRS will also pay for 30% of whatever it costs you.
Sadly, first-time home buyers hoping that the Inflation Reduction Act will reduce housing costs for them will be disappointed. It’s important to remember that just because inflation is down doesn’t mean housing costs are down.
While the act makes it easier to save money on energy upgrades for your properties it does little to nothing to address rising housing costs. So, the only way that new home buyers can benefit from the Inflation Reduction Act is by immediately upgrading their homes with green improvements.
Sadly, many new homeowners cannot afford these improvements. For one thing, there are the costs associated with buying a new home.
When first-time buyers finally get their property their funds are typically depleted from down payments and the various fees/costs that come with real estate transactions.
This leaves little money in the short term to devote to green improvement projects. On top of that, there’s the fact that the cost of loans has just increased.
This is due to the Federal Reserve raising its key interest rate for the fourth time in the past five months. In the long term, this move will help fight inflation.
But, in the short term, it increases the cost of borrowing money for things like mortgages. So, home buyers hoping to save money on their home investment are going to be disappointed.
According to the Federal Housing Finance Agency, the median home cost rose by 18.3% from May 2021 to May 2022. So, when can home buyers expect those prices to drop? Ideally, these prices will come down soon.
There are some theories that these higher asking prices are because of an influx of larger homes coming on the market. Since sellers want to make a profit off of their investments they rise the prices even though market conditions have not adjusted.
This isn’t sustainable. The reality is that housing supplies are starting to rise again, slowly but surely, in certain areas. On top of this, many sellers are experiencing sluggish sales on their listings.
So, hopefully, when sellers become attuned to the fact that demand is rapidly decreasing the prices will begin to lower. However, those hoping that the real estate market will crash soon shouldn’t hold their breath.
The increased interest rates are helping to cool the market for the time being. As more homes are built we can expect demand to decrease more and prices to fall.
But, this is happening at a rate that is much too slow for some people. These are all things you should take into account when monitoring the housing market over the next year.
We hope this article helped you learn how the Inflation Reduction Act is affecting housing costs. As you can see, the act does benefit homeowners and real estate investors that want to invest in green energy upgrades on their properties.
Sadly, the act does next to nothing for first-time home buyers. So, if you’re waiting for the housing cost to drop to buy your first property, it’s likely going to be a while before you see change.
Have any comments, feedback, or questions about our article? Make sure to contact Realty Biz News and continue reading to get the latest updates on the housing market.