Earlier today, President Bush announced that he had reached a bipartisan agreement with House leadership on an economic package designed to bolster the U.S. economy. An integral part of this package is an increase in Fannie Mae’s and Freddie Mac’s conforming loan limits from $417,000 to $625,000. How will this impact our local Real Estate market?
For most buyers in Los Altos, Los Altos Hills and Palo Alto, there isn’t likely to be much of a benefit. However as you move down in price and go to areas like West San Jose, Campbell, Mountain View or Sunnyvale, this could provide an incentive for buyers to buy bigger.
Home owners with current loans values from $417,000 - $625,000. will also benefit by being able to refinance those loans into the new conforming loan rates. Currently rates for jumbo loans carry slightly over 1 point risk premium over those of conforming rates. A ongoing problem will continue to be the ability of borrowers in this price range obtaining the down payment.
For a 750K home, a buyer will need $125K in cash as a down payment. A borrower buying today, using a current jumbo loan rate of approximately 6.38% would have a monthly payment of $3913. Compare that with (if the stimulus package is approved) a current conforming rate of 5.23%, the borrower’s payment would be approximately $3,443. That’s a monthly savings of approximately 14% or $469. That’s a lot of Mocha Frapachinos!!!
The economic stimulus package is likely to be on President Bush’ desk by mid-February and would expire at the end of the 2008 calender year. If you are planning on making a real estate purchase around the median sale price in Santa Clara County ($739,000.), you will benefit greatly (to the tune of approximately $400. per month) from this stimulus package.
Does anyone have any thoughts on whether this stimulus package will create another local seller’s market in the $525,000 - 780,000 price range?
Arn Cenedella, an agent Specializing in Menlo Park real estate or Marian Bennett, specializing in Half Moon Bay real estate discuss their thoughts on this exciting news.
3 responses so far ↓
1 House passes bill increasing Fannie Mae and Freddie Mac loan limits | Peninsula Real Estate Guru // Jan 24, 2008 at 10:12 pm
[…] David Blockhous a long-time Los Altos resident and real estate agent with Coldwell Banker correctly points out that even if the increase in loan limit is passed it will not have a large effect on the Los Altos Palo Alto Menlo Park market since average prices are over $1.5M so even a $625,000 loan is well under 50% of the normal house price. Of course, the Los Altos Palo Alto Menlo Park real estate market is doing just fine. It is the lower price range that needs help. In the $600,000 to $800,000 price range, the proposed increase will help home buyers. […]
2 Conforming Loan Limits may be raised for San Francisco Bay Area borrowers | Coastal Real Estate and Lifestyles // Jan 25, 2008 at 9:03 am
[…] Dave Blockus, a Realtor with Coldwell Banker in Los Altos points to the the fact that the down-payment will still be an issue for many. […]
3 John David // Jan 25, 2008 at 10:37 am
(a) I hate to be the naysayer of the crowd, but after the politicians are done buying votes and realize that they can’t jack up the plan with more entitlements and that their candidate is in jeopardy of not winning, the plan will stall.
(b) If the plan does go through, then people with high AGI’s will get no benefit from the rebates and as far as the Fannie Mae concept that only will be available until Dec of 2008 which probably translates into Sellers forcing buyers to pay more to hang onto the lower rate. If the plan gets approved, then it would potentially start in Apr, so there would be an 8 month window to utilize the new lower conforming rates which the sellers would know that and potentially not move on price or even raise their price.
(c) Lastly, this also doesn’t take into account the fact that lenders are asking potential clients to have 750 + credit scores, 20% down and 6 months of payments in the bank. (granted not all lenders require this, but banks are afraid to lend - does this fear disappear because the conforming loan limits are raised?)
So I ask the questions: Will sellers maintain their price or atleast not raise it, will sellers negotiate in good faith or grind the buyers due to the lending deadline of Dec and lastly will it make a huge impact on the real estate market in the bay area in that 8+ month window? I hope so, but I doubt it.
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