Market Stimulus

Part of the economic stimulus package that President Bush signed into law last week is going to positively impact the real estate market. In addition to the tax rebates many individuals can expect to receive in the springtime, there is another benefit of this package that is more directly related to real estate.

Fannie Mae and Freddie Mac are government sponsored enterprises that help keep the mortgage market liquid by purchasing mortgages from banks & lenders; they then sell those mortgages to investors. This keeps the lending institutions from "running out of money to lend" and allows them to continue to provide financing to homebuyers like you and me. Fannie & Freddie currently cap the size of the loan they will purchase at $417,000. Part of the economic stimulus package is to increase this "conforming loan" size to $729,750. These "jumbo" loans usually draw higher interest rates, but with the passage of the law, interest rates on these larger loans are expected to decrease.

NAR forecasts that the increase in the conforming loan limit will result in:

~500,000 refinanced loans and could help reduce foreclosures by as much as 210,000

~300,000 additional home sales potentially generated

~reduced housing inventory

~home price increase by 2-3 percentage points

Additionally, part of the plan is to increase the size of FHA-backed loans to the same limit of $729,750 from a previous $362,790. FHA provides insurance on various loans and is backed by the U.S. Dept of Housing & Urban Development (HUD). The insurance on these loans allows more homeowners to purchase homes with low or no downpayment due to the decreased risk to the lender. Increasing the loan size limit on these loans will make home purchases more affordable for many.

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The Real Estate Papparazzi #3

At least not everyone is hesitant to invest in the real estate market today. The most saavy investors realize that the "buy low, sell high" adage applies right now to the housing market. Anyone who is waiting for "prices to hit rock bottom" already missed it.

Shares of the S&P Homebuilders Sector Spider (XHB), an ETF of the largest public residential homebuilders has risen 7% this year! In a year when house prices are down about 4% for the Chicago area and much more in other parts of the country, a 7% increase in real-estate derived investments is a serious sign of what's to come!

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Please Refer to...

My line of business is heavily reliant on referrals. So for my post today I am going to refer you to someone else's blog post that I think will be interesting to anyone curious about the real estate market's affect on the availability of financing.

http://www.themortgagereports.com/2008/02/how-the-declini.html

Transfer Taxes for Transportation

If you live in Chicago, you're sure to be familiar with the hotly debated CTA funding issue. The City has threatened to raise fares and cut bus routes if they don't get the additional funding they need. So on Feb 6, next week, the Chicago City Council will be voting whether to raise the city's real estate transfer taxes in order to fill the transportation funding gap.

The vote is for a 40% increase in the real estate transfer tax. This would mean that buyers of real estate would pay $10.50 in taxes per $1,000 of each real estate transaction, compared to the $7.50 that they currently pay. For a $200,000 real estate purchase, this would increase the transfer tax by $600 to $2100!

Why would we increase real estate taxes by 40% in order to fund transportation? The tax will actually be funding CTA pensions and retiree health care plans. The tax won't add a single additional bus or train line or pay for upgrades or maintenance. The market is already struggling to come up with enough buyers to absorb the supply of housing... why make it even more difficult?

Visit http://wrongtax.com/ to voice your opinion on this issue or contact your alderman.