Well, there was no lack of drama in Washington this week.
The House and Senate voted on Friday to approve the final version of the $787 billion (with a “b”) economic stimulus package that has been the talk of the country for the past month.
For housing in Southern California, there are two key components:
1) Restoration of the higher FHA loan limits for most of our region that were part of last year’s Housing Recovery bill signed by then-President Bush;
2) An $8,000 true tax credit (almost like a gift) for first-time buyers who purchase a home by December 1, 2009.
FHA began 2008 with a maximum loan limit of $362,790 in high cost areas like Orange County and San Diego, with a sliding scale rolling all the way down to a cap of $200,160 in the lowest cost markets.
Under the legislation passed last summer to spur the housing market, the FHA loan limit was temporarily boosted as high as $729,750 in high cost markets, a move which dramatically increased accessibility to affordable financing and allowed buyers to purchase homes with as little as 3% down through FHA.
As of January 1, 2009, the old, lower FHA loan limits returned, effectively pulling the plug on sellers and buyers in high cost markets like ours.
By restoring FHA loan limits to those outlined in the Housing Recovery bill from last year, buyers have MUCH easier access to financing on more higher cost properties. That’s a major victory that will absolutely help the Southern California housing market in 2009.
The tax credit provision was one of the most heavily lobbied and debated components of the economic stimulus package.
In short form, here’s how the tax credit idea evolved:
Last year’s Housing Recovery Act included a provision which offered a refundable, repayable $7,500 tax credit to first-time buyers who purchased a home between April 9, 2008 and June 30, 2009. The credit was limited to those who had not purchased a home in the past three years and actually served as more of an “interest free loan”, as the credit had to be paid back by the taxpayer in 15 installments of $500, beginning with the 2010 tax year.
The House version of the Economic Stimulus bill extended the existing credit out to the end of 2009, while the Senate’s version when much further, doubling the credit to $15,000 and making it available to all homebuyers purchasing a principal residence.
In the end, the committee which negotiates out the differences between the House and Senate drafts of the bill settled on $8,000 for first-time buyers, eliminating the repayment clause and extending the credit through December 1, 2009.
So, in summary, the tax credit provision remained only for first-time buyers, but was increased to $8,000, made non-repayable, and extended to December 1.
While some are disappointed that the full $15,000 tax credit did not end up in the final bill, the reality is that the new credit is larger and better than the old credit, and it will be around longer than in the original Housing Recovery bill from last year.
That’s good news, not just for buyers, but for sellers of entry-level homes who will now find more buyers eager to take advantage of a generous incentive.
In the end, these changes should give our market a good, solid dose of adrenaline. I am excited about the new opportunities that have been created and I know that buyers, sellers and those having difficulty staying in their homes will all benefit from this legislation.
With sales up 47.9% in California during December, buyers are already charging back into the market. These latest incentives should only help us further as we begin a demand-driven housing recovery.
The House and Senate voted on Friday to approve the final version of the $787 billion (with a “b”) economic stimulus package that has been the talk of the country for the past month.
For housing in Southern California, there are two key components:
1) Restoration of the higher FHA loan limits for most of our region that were part of last year’s Housing Recovery bill signed by then-President Bush;
2) An $8,000 true tax credit (almost like a gift) for first-time buyers who purchase a home by December 1, 2009.
FHA began 2008 with a maximum loan limit of $362,790 in high cost areas like Orange County and San Diego, with a sliding scale rolling all the way down to a cap of $200,160 in the lowest cost markets.
Under the legislation passed last summer to spur the housing market, the FHA loan limit was temporarily boosted as high as $729,750 in high cost markets, a move which dramatically increased accessibility to affordable financing and allowed buyers to purchase homes with as little as 3% down through FHA.
As of January 1, 2009, the old, lower FHA loan limits returned, effectively pulling the plug on sellers and buyers in high cost markets like ours.
By restoring FHA loan limits to those outlined in the Housing Recovery bill from last year, buyers have MUCH easier access to financing on more higher cost properties. That’s a major victory that will absolutely help the Southern California housing market in 2009.
The tax credit provision was one of the most heavily lobbied and debated components of the economic stimulus package.
In short form, here’s how the tax credit idea evolved:
Last year’s Housing Recovery Act included a provision which offered a refundable, repayable $7,500 tax credit to first-time buyers who purchased a home between April 9, 2008 and June 30, 2009. The credit was limited to those who had not purchased a home in the past three years and actually served as more of an “interest free loan”, as the credit had to be paid back by the taxpayer in 15 installments of $500, beginning with the 2010 tax year.
The House version of the Economic Stimulus bill extended the existing credit out to the end of 2009, while the Senate’s version when much further, doubling the credit to $15,000 and making it available to all homebuyers purchasing a principal residence.
In the end, the committee which negotiates out the differences between the House and Senate drafts of the bill settled on $8,000 for first-time buyers, eliminating the repayment clause and extending the credit through December 1, 2009.
So, in summary, the tax credit provision remained only for first-time buyers, but was increased to $8,000, made non-repayable, and extended to December 1.
While some are disappointed that the full $15,000 tax credit did not end up in the final bill, the reality is that the new credit is larger and better than the old credit, and it will be around longer than in the original Housing Recovery bill from last year.
That’s good news, not just for buyers, but for sellers of entry-level homes who will now find more buyers eager to take advantage of a generous incentive.
In the end, these changes should give our market a good, solid dose of adrenaline. I am excited about the new opportunities that have been created and I know that buyers, sellers and those having difficulty staying in their homes will all benefit from this legislation.
With sales up 47.9% in California during December, buyers are already charging back into the market. These latest incentives should only help us further as we begin a demand-driven housing recovery.
