Will The New Stimulus Package Help The Housing Market?

2/18/2009

Yesterday President Obama signed the 2009 stimulus package into law. There are a number of provisions that will effect the housing industry. Will this legislation put a floor on real estate values and start moving the industry towards recovery? Let's look at the portions of the plan that will affect the real estate market.

$8,000 Tax Credit for First-Time Homebuyers:

The original proposal was for a $15,000 tax credit for all purchases of homes. The new package contains an $8,000 tax credit restricted to first-time homebuyers. There is talk of reintroducing separate legislation to modify the tax credit. Here's a breakdown of the legislation signed yesterday:

* The tax credit is for first-time homebuyers only. (Cannot have owned a principal residence over the three years prior to purchase.)
* The tax credit does not have to be repaid. (There is a recapture clause. If the home is sold within three years of purchase the entire amount of the credit is recaptured on the sale. This applies only to homes purchased in 2009.)
* The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $8,000.
* The credit is available for homes purchased on or after January 1, 2009 and before December 31, 2009.
* Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit. The credit phases out for incomes above these levels.
* The tax credit does not need to be paid back to the government unless the property is sold within three years, at which point the entire amount of the credit will be recaptured.

Higher Loan Limits:

The ceiling for Fannie Mae, Freddie Mac and FHA loans was increased to $729,750 in high cost areas through December 31, 2009. The factor for high cost areas is increased back to 125% of the 2008 median home price for markets between the floor and ceiling limits. The limits will maintain the current floor limit of $271,050 for FHA loans and $417,00 for conventional loans. For the few markets where the 2009 limits were higher than 2008, those markets will maintain the higher limit. As I write this the web sites for Fannie Mae, Freddie Mac and FHA (HUD) have not been updated to reflect the new limits.

Reverse Mortgages (HECM)

Reverse mortgage allow qualified borrowers to refinance or purchase homes without having to make any payments while living in the home. The new legislation raises the maximum loan amount to $625,000. While FHA loan maximums are set depending on the properties location, the HECM maximum loan amount is the same throughout the country. It's been tough to find information about the new HECM rules but I believe the new loan limit will expire on December 31, 2009 and will then return to the current limit of $417,000.

Call me with any questions you have concerning the current market.