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Policy Brief: HomeK Accounts: A Down Payment on Homeownership and Retirement

By and / 10.19.2011

Two years after the meltdown in the nation’s housing market, housing re- mains weak. Home prices fell to a new low in the first quarter of this year— confirming a feared “double-dip” in the market. Prices are now down nearly 33 percent from their high five years ago.

With housing and its related industries—construction, home retail, etc.— constituting almost 19 percent of the nation’s economy over the last 40 years,2 restoring the housing market will be essential to a sustained eco- nomic recovery. And key to this will be ensuring a robust market for first- time home sales.

Yet, even with home prices as low as they currently are, many potential homebuyers may face more—not fewer—obstacles in their path to home- ownership. In the aftermath of the crisis, credit is tighter, as are down pay- ment requirements. At the same time, the stresses of the economy have meant that potential homebuyers are in worse shape financially than they once were.

The creation of a new, tax-preferred mechanism for down payment sav- ings—a “HomeK”—could help first-time homebuyers navigate these new hurdles while also promoting more savings. And if structured as a carve-out from existing retirement planning mechanisms, not as a new type of ac- count, the HomeK would have the added benefit of promoting retirement savings and will not contribute to further tax code complexity.

Read the entire brief.