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Rate Update and Stimulus Program Updates

A full slate of economic data and record Treasury auctions last week led to volatility in both the stock and bond markets. Earlier in the week, the S&P/Case-Shiller home price index rose a seasonally adjusted 1% in August, New Home Sales unexpectedly fell in September by 3.6%, and Consumer Confidence unexpectedly declined in October. These reports reinforced concerns over the looming expiration of stimulus programs such as the $8,000 tax credit and temporary loan limits, driving bank and home builder stocks down. On Thursday, we learned 3rd quarter Gross Domestic Product grew at a 3.5% annual rate, the first increase in GDP in a year, leading stocks to their largest increase in three months. However, the gains were short-lived as the Dow Jones experienced its largest decrease in four months on Friday. After the busy week, stocks were down slightly and mortgage rates were roughly unchanged. Currently, the 30 Year Fixed sits at 4.625% (4.804% APR) and the 15 Year Fixed is at 4.250% (4.557% APR). The biggest economic events this week will be the Fed meeting on Wednesday and the Unemployment Rate on Friday.

Much of the talk around office water coolers at real estate and mortgage offices nationwide has been about the expiration of two popular stimulus programs – the $8,000 first time home buyer tax credit set to expire on November 30th and the temporary conforming-jumbo loan limits terminating at the end of the year. It is unclear how many purchase transactions were direct results of the tax credit, but some estimates suggest up to 60% of home-buying activity in the past several months would not have occurred without the credit. The temporary conforming-jumbo loan limits have provided a welcome solution for higher balance loans needing to refinance while traditional jumbo markets continue to remain dormant. But what does the future hold for these stimulus programs?

It appears the tax credit extension and expansion will be signed in the upcoming days, however, the administration is preferring slightly different terms. The latest version would extend the credit to home sales that go under contract by April 30th and close by June 30th. A new $6,500 tax credit would be available to buyers of owner occupied primary residences who have owned during 5 of the 8 years prior to the purchase. The proposed home price limit would be $800,000, and the annual income limit to qualify would be $125,000 for individuals and $250,000 for couples. Although there is widespread support in Congress for a tax credit extension, there is nothing concrete yet as Congress still hasn’t finalized the legislation.

It also appears to be good news for the extension of the temporary conforming-jumbo loan limits. Appropriations committees in the House and Senate are proposing to extend the temporary limits for conforming-jumbo loans through the 2010 calendar year, keeping the eligible loan amounts for Fannie and Freddie at 125% of local median home sales prices, up to a maximum of $729,750 in high-cost areas ($687,500 in SLO County). The legislation was approved by both the House and Senate late last week.

Written by Keith Byrd - Go to Keith's Website/Profile