San Carlos Real Estate Agent, San Carlos Realtor How the New Economic Stimulus Plan will benefit San Carlos… | The White Oaks Blog
San Carlos Real Estate February 16, 2009

How the New Economic Stimulus Plan will benefit San Carlos…

by Chuck Gillooley

obama

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.

Summary

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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Comments 4
  • Good post – Yes Tuesday is the big day. I have a first time buyer closing Feb 24 and they went into contract before there was any talk of new tax credit. With an FHA loan, these buyers are out of pocket only $10,000 so getting the $8,000 back, they are really only out of pcoket $2,000 to buy. In terms of loans, I would like to see the lenders truely honor the new conforming limits instead of maintaining a three tier pricing schedule 1) loans below $417,000 2) loans above $417,000 to the current or new “conforming” limit of $625,500 or $729,950 and 3) above $729,950. If the government wants to help the market in our area, they should encourage the lender to offer the same rate on the larger conforming limit as the $417,000 amount.

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    • Arn,

      Thanks for your comment. No argument here — a two tier system would certainly entice more buyers to get off the fence.

      Chuck

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  • Chuck

    I think the effect will be minimal.

    On the tax credit, its approximately a 1% savings on a San Carlos lower level home. Additionally, it has income limits, the phase outs start at 150K income for couple, and 75K for individual. In order buy a 800K house these days, I think lenders are looking for at least 150K income, as a rule. Perhaps it might have a small effect on east of el camino starters. Those are prices are falling pretty quickly. Frankly, if 8K tax credit makes the difference in affording a place or not, I think the person cant afford it. Now if we were in Iowa, talking about 80K houses, the story would be very different. 8K is real money then.

    On the conforming limits, 729,500 was in place until Dec 31 2008, was temporarily down to 625K and now returns in approx March to 729K. So its not really being added to the market, rather it was temporarily removed for 3 months and is now coming back. I guess as prices fall it becomes more relevant, but hasnt credit been available for high quality applicants throughout this crisis?

    BB

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    • BB —

      Your comment is spot-on. Back when the 2008 Stimulus Package was announced, I wrote in these pages about my skepticism about how much impact it would have, especially in San Carlos. The loan limits simply weren’t high enough to help those who needed it most — first time buyers.

      Of the two main items in the new 2009 Bill, I believe the extension of the loan limit will have a far greater impact than the $8,000 home credit. As you correctly stated, the credit phases out as income rises, so the real “net” effect of the $8k credit will likely be far less than advertised for potential San Carlos buyers.

      While you’re correct about the loan limit of $625k already being in place, there are a couple of important things to remember about the “extended conforming” loans, aka Agency Jumbos that make them attractive:
      — Rates. As Arn states above, the system currently gives us a 3-tiered rate system. True conforming (< $417k), Agency Jumbo ($417k - $729.5K), and Jumbo (>$729.5k) all have different rates. And up until very recently, the step between Agency Jumbo and Jumbo was a BIG one. Jumbos were up in the 7%+ range. So giving the buyer another $100k worth of buying power at a lower rate can make the difference between buying the house and not.
      — Borrowing Limits: A key difference between the two larger loans is how much a buyer can actually borrow. On a jumbo loan, the maximum that a buyer can usually borrow is 80% of the purchase price. However, with some Agency Jumbos, borrowers with excellent credit can get to a 90% loan-to-value (LTV). Again, that extra bit of buying power can be the difference.
      — House prices. As I stated in the post, that same $729.5k buys a lot more house today in San Carlos than it did last year.

      How much of an impact will this Act have? Hard to tell. There are much bigger influences, such as unemployment, that will keep people out of the market regardless of how good the rates are, or how much credit they’ll get back. But any step in the right direction is a welcome one.

      Thanks again for your comment.

      Chuck

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