After weeks of bi-partisan quarreling, the new Economic Stimulus plan — also known as H.R. 1 – The American Recovery and Reinvestment Act of 2009 — appears to be headed to law, pending Presidential signature. If you kept an eye on some of the key components of this bill (especially those that pertain to real estate) it was akin to watching a tennis match — lots of back and forth, with the outcome changing constantly.
Now that the dust has settled, there are three main components of this bill should benefit the San Carlos real estate market. The group that will benefit most from the bill will be first-time buyers, but they are the beginning of the sales-chain and are absolutely critical to jump-starting the market here.
What’s in the Bill
There were many provisions passed in this bill that are intended to mitigate the devastating effects of neighborhood-wide foreclosures. Since that doesn’t apply to San Carlos (let’s hope it stays that way) I’ll focus on the 3 main points that are most relevant to our market. According to the National Association of Realtors, here’s what’s in this bill:
1. Homebuyer Tax Credit
The bill provides for a $8,000 tax credit that would be available to first-time home buyers for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009. The credit does not require repayment, but may have stipulations requiring that the home be used as a principal residence. NAR was lobbying for a $15,000 credit, but this figure was negotiated downward. Most of the mechanics of the credit will be the same as under the 2008 rules: the credit will be claimed on a tax return to reduce the purchaser’s income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser. Important: Be sure to consult a qualified tax professional to understand ALL of the provisions of this tax credit before you purchase a home.
2. Extend Conforming Loan Limits
The bill reinstates last year’s extended loan limits for FHA, Freddie Mac, and Fannie Mae loans. If you recall, these limits were equal to the greater of 125% of the 2008 local area median home price or $271,050 for FHA and $417,000 for Fannie and Freddie, with an overall maximum cap of $729,750. This is really just an extension of the 2008 loan limits, and it’s only good for another year as the new limits will expire December 31, 2009.
3. Preserve Captial Gain Exemptions
Although it’s not widely publicized, every time Congress considers any sort of homeowner relief bill, our golden egg that is the $250,000/$500,000 (single/married) capital gain exemption is always put back on the table. Congress would love nothing more than to regain this revenue stream, but the good news is that it has once again been left intact.
How this Impacts San Carlos
The first two points outlined above will have the largest positive impact on the real estate market in San Carlos.
- Tax Credit: Even though we didn’t get the full $15,000 tax credit, $8,000 is not pocket change, and ANYTHING that increases the buying power of first-time buyers will be beneficial.
- Loan Limits: I was skeptical about this plan last year, simply because the price of housing in San Carlos was still so high that the increased limit of $729,950 would only benefit those buyers with large down-payments (i.e. not typical first-time buyers.) Now, with the price of starter homes dropping to forgotten levels, this resource of secure, low-interest money will carry a lot more weight than before. These “Agency Jumbo” loans will likely become be the primary source of finance for buyers of starter home in San Carlos this year.
The long-awaited Stimulus Plan is obviously not the panacea for everything that is wrong with the real estate market today. The problem is MUCH bigger than that. However, it does present some unique opportunities for first-time home buyers, which should then have a positive domino-effect on the rest of the market. But bear in mind that the provisions outlined in this bill are only valid for 2009, so if you’re on the fence — you now have some good reasons to hop off and become a homeowner!
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