Stimulus bill restores Fannie, Freddie, FHA limits

Congress today approved a $790 billion economic stimulus bill that includes a modest expansion of a first-time homebuyer tax credit and restores to $729,750 the upper loan limit in high-cost areas for Fannie Mae, Freddie Mac and FHA loan guarantee programs.

The compromise bill increases the $7,500 limit on an existing tax credit for first-time homebuyers to $8,000, extends its sunset from July 1 to Dec. 1, and eliminates a requirement to repay the credit (unless a home is resold within three years).

The loan limits for Fannie Mae, Freddie Mac and FHA loan guarantee programs, which were bumped back down to $625,500 in high-cost areas on Jan. 1, were restored to the temporary $729,750 approved by Congress a year ago in the Economic Stimulus Act of 2008.
Fannie and Freddie's conforming loan limits -- which began 2008 at $417,000 -- were allowed to stretch to 125 percent of the median home price in high-priced housing markets for much of last year. That was intended to be a temporary measure to address the high cost of non-conforming "jumbo" loans after the collapse of the private-label secondary mortgage market in August 2007.

The $729,750 limit expired on Jan. 1, and Fannie, Freddie and FHA are currently permitted to guarantee loans of up to 115 percent of the median home price in high-cost markets, with a cap of $625,500 (that's 150 percent of the $417,000 conforming loan limit). HR 1 will restore the limit to 125 percent of median home price in high cost markets, up to $729,750, for the remainder of 2009.

If you or someone you know is looking to buy or sell a home in Frisco, Plano, McKinney or any of the communities in Collin and Dallas County, then contact Realtor David Raisey at www.RaiseyRealEstate.com http://www.raiseyrealestate.com/

Mortgage Rates in 2009

Mortgage Rates in 2009: 7 Things You Need to Know
A look at where rates on home loans are headed in the New Year
By Luke Mullins
Posted December 11, 2008
It wasn't too long ago that mortgage rates were expected to move sharply higher in the coming months thanks to rattled investors and mounting inflation. But while falling home prices and jittery financial markets have done little to assuage investor fears, a number of recent developments have combined to create a decidedly optimistic mortgage-rate outlook for 2009. "The preponderance of forces that would typically operate on mortgage rates—the economic backdrop, the inflation backdrop, and, in this case, government policy—are all pointing towards lower interest rates," says Mike Larson, a real estate analyst at Weiss Research.
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Rates have already become increasingly attractive. The average national rate for 30-year fixed mortgages fell to 5.57 percent in the week of December 5, from 6.61 percent just seven weeks earlier, according to HSH Associates. Here's a look at where mortgage rates are headed in the New Year, the forces that will be influencing them, and how consumers can take advantage of the trends.
1. 2009 Rate Outlook : Thirty-year fixed mortgage rates should begin 2009 at around 5½ percent, says Keith Gumbinger of HSH Associates. From there, they will "wax and wane" in the 5½-to-6 percent range, before closing out the year somewhere between 6 and 6¼ percent. "That's still very attractive," he says. "There is no reason to think that rates are going to go up so substantially so as to erode the marketplace." (However, should the economic outlook improve more quickly than expected, mortgage rates could trend higher, Gumbinger says. In addition, new government programs unveiled next year could alter the projection.)
There are thee main factors behind the outlook:
2. Inflationary Easing : With the global economy headed for what many expect to be a nasty recession, the inflationary pressures that looked so menacing in the summer have quickly dissipated. The government reported in November that the core consumer price index—a measure of inflation that excludes volatile food and energy prices—decreased by 0.1 percent in October from the previous month, a sharp decline from the 0.3 percent monthly increase posted in July. At the same time, crude oil has plummeted from more than $140 a barrel in the summer to less than $50 a barrel in December. When inflation eases, yields on government bonds—like the 10-year treasury note—tend to drift lower. And because 30-year fixed mortgage rates typically track the yields on 10-year treasuries, the diminished inflationary outlook has helped pull rates downward. "The sudden collapse in prices has changed things dramatically," says Gumbinger. "That was really one of the linchpins as to why rates finally did fall."
3. Recession: The National Bureau of Economic Research recently announced that the United States did indeed enter a recession in December 2007. While predictions as to the duration and depth of the recession vary, economists at Goldman Sachs last month revised their original forecast in the face of deteriorating economic news. "This deepens and extends the expected recession, bringing the drop in GDP close to the decline seen in 1982 (2.3 percent in our forecast versus 2.7 percent then)," the economists said in the report.
The recession is likely to put additional downward pressure on mortgage rates in two key ways. First, the economic contraction will work to stifle inflation. And second, it will support the ongoing "flight to quality," whereby investors move cash from more risky investments—like stocks—to ultrasafe government securities. Such forces are already bringing yields on government bonds sharply lower. Ten-year treasury yields fell to 2.66 percent during the week of December 5, from 4.02 percent just seven weeks earlier. "You are seeing nominal treasury yields at new multidecade and, in some cases, all-time lows," Larson says. "[This] should add downward pressure on mortgage rates as well."
4. Government Action: The outlook for mortgage rates has also been influenced by recently announced government initiatives. In late November, the Federal Reserve announced plans to buy up hundreds of billions of dollars in debt and mortgage-backed securities from government-controlled mortgage finance giants Fannie Mae and Freddie Mac. The plan is designed to reduce Fannie's and Freddie's financing costs, thereby enabling them to pass savings on to individuals in the form of lower mortgage rates. The Fed has since suggested it may begin buying long-term treasury bonds, which could bring 10-year treasury yields even lower. These announcements triggered an immediate drop in mortgage rates and could continue to keep rates low in the coming months. And while the massive bailout initiatives that governments around the world are now undertaking will undoubtedly lead to renewed inflationary pressures, this impact is unlikely to materialize until 2010, Gumbinger says.

Great Article about Real Estate

WASHINGTON — Construction of single-family homes in October skidded to the lowest level in 16 years although the slide was cushioned somewhat by a rebound in apartment building.
The Commerce Department reported Tuesday that total housing construction rose by 3 percent in October to a seasonally adjusted annual rate of 1.229 million units. But all the strength occurred in a hefty rebound in apartment construction, which is extremely volatile.
The bigger single-family sector actually fell by 7.3 percent to an annual rate of 884,000 units, the slowest pace since October 1991, when housing was going through another steep downturn. In another worrisome sign, applications for building permits fell for a fifth straight month.
The current housing slump is expected to worsen further before starting to rebound in the middle of next year. The credit crunch that hit with force in August has caused financial institutions to tighten up on their lending standards, making it harder for prospective borrowers to get home loans.
In addition, some 2 million borrowers who took out subprime loans during the peak of the five-year housing boom are now seeing low introductory rates reset to much higher levels, adding $250 to $300 to the typical monthly payment. The concern is that this will fuel a tidal wave of defaults over the next two years, dumping even more unsold homes onto the market.
On Wall Street, investors discounted the housing news to hunt for bargains, pushing stock prices higher following steep losses in trading on Monday.
Analysts predicted that construction activity will slump even further in coming months as builders strive to reduce their inventory of unsold homes. They noted that applications for new building permits, considered a good barometer of future activity, fell 6.6 percent to an annual rate of 1.178 million units.
“This is just what the doctor ordered,” said David Seiders, chief economist of the National Association of Home Builders. “Given weak demand and the large overhang of inventory, you just have to cut back on production.”
The association’s monthly survey of builder sentiment remained at a record low in early November. Seiders said that reflected the further tightening in mortgage lending standards that has been occurring since financial markets were roiled this summer by rising defaults on subprime mortgages — loans offered to people with weak credit histories.
Seiders predicted construction activity will start to rebound by the second half of next year, once sales stabilize. But he said for this forecast to come true, he expects the Federal Reserve — which has already cut interest rates twice since September — will have to cut rates further to make sure the overall economy is not pulled into recession from the deepening problems in housing, the credit crunch and surging oil prices.
“For housing to come back, the overall economy has to perform pretty well and for that to happen, it will take a couple more rate cuts by the Fed,” Seiders said.
Many economists believe that overall economic growth — which roared ahead at an annual rate of 3.9 percent in the July-September quarter — will skid to 1 percent or less in the current quarter and the first three months of next year, raising the threat that some unexpected shock could put the country into a full-blown downturn.
Other analysts believe the Fed will cut rates further despite their recent comments about risks being balanced between weak growth and higher inflation.
Joel Naroff, chief economist at Naroff Economic Advisors, said the Fed may well remain on hold at its next meeting on Dec. 11, but he predicted overall economic weakness will prompt the Fed to push the federal funds rate, currently at 4.5 percent, well below 4 percent next year.
In contrast to the 7.3 percent drop in single-family construction, the government reported that multifamily activity, which represents less than one-third of total construction, surged by 44.4 percent in October but that gain came after a 35.9 percent plunge in September in what is a very volatile series.
The rebound in overall construction in October reflected gains in all regions of the country except the South, where building activity fell by 4.6 percent. Construction rose by 21.1 percent in the Midwest, 8.5 percent in the Northeast and 5.8 percent in the West.