Congress finally came to terms on this stimulus bill that we’ve been hearing so much about. This thing is very far reaching and is going to cost a boat load of money, but I am just focusing on the items that will affect real estate sales and mortgage finance.
Mortgage Rate Reduction – There has been a lot of buzz about the government somehow forcing mortgage rates down to 4%. There has never been a clear answer as to how they would do this (mortgage rates are set by a free market pretty much like everything else in the USA!). This bill does not call for any specific measure that would peg mortgage rates at some direct level. It does, however, allow the Fed’s to continue to purchase mortgage backed securities (MBS) in the secondary mortgage market. Keeping this market de-thawed should allow mortgage rates to remain low as they have been for the past 8 weeks. The bottom line is that fixed rate mortgages in the 5’s are pretty great anyway!
Higher Loan Limits – One of the things this bill does is to re-set loan limits to 2008 levels. This is more important than it appears. For example, in our area of Southeastern Michigan, the FHA loan limit had been reduced from $297,500 to $271,050. This might not seem like a big deal but if you’re a homebuyer and want to purchase something that’s $300,000 then it is a big deal! Overall, conventional loan limits will remain unchanged around most of the nation because Fannie and Freddie did not reduce the limits this year so the conventional loan limit for most areas will remain at $417,000.
Changes to the Homebuyer Tax Credit – The homebuyer tax credit has been re-vamped in a couple of ways. The maximum credit amount has been increased to the lesser of 10% of the purchase price or $8,000 (up from $7,500).Now the tax credit does not have to be repaid (this is great!) unless the buyer sells the home in the first 3 years and then they have to repay the entire amount. Also, the time period has been extended and now the tax credit is available until December 1, 2009. All other income limits and first time buyer requirements still apply. The new tax credit begins on January 1. Anyone who bought a home in 2008 under the previous law is still subject to the rules of the old bill but anyone buying in 2009 is subject to these new rules even if they bought prior to the bill being passed as long as the purchase date was in 2009.
This “Stimulus Bill” is enormous – just another way for the government to grow even larger? How are we going to pay for these $800 billion dollar expenditures? What long term effect will printing all of this new money have on our future economy? Who knows! All I know is we have to head off a potential economic disaster and this seems like the best way to do that right now.