How the American Recovery and Reinvestment Act Helps You, Houston and The Woodlands, Texas
While real estate sales in Houston definitely slowed after the hurricane, the mortgage meltdown, and the economic crisis, the reasons it slowed are different from the rest of the nation.
1. Houston had the most job growth of any city in the nation in 2008,
2. The number of homes on the market is the lowest it has been since 2004!
Being jolted by a major hurricane then jolted with a constant barrage of negative news – the financial crisis, Wall Street meltdown, economic stimulus plan and so on – the messages cannot help but cause a loss of confidence in the future.
Now enter the long awaited economic stimulus bill with provisions directed toward cities and states overburdened in foreclosures and/or losing a sustainable job base.
Fortunately, we get the benefits of these stimulus programs that can only help improve our local economy.
- First-time home buyer IRS tax credit of $8,000 for the purchase of a home between now and December 1, 2009 with no provision to pay it back, as in the previous plan. A tax credit reduces taxes directly. Ex: If you owe $15,000 in total to the IRS and you buy a home before December 1, you owe only $7,000. If you already paid $15,000 during the year through pay roll taxes, then you will receive a check back for $7,000. Definitely an advantage to those 20,000 in the Houston metropolitan area that elected to rent their home last year rather than purchase.
- Here’s an article from CNN Money that outlines the details.
Benefit to Houston and The Woodlands: A tax credit should stimulate home buying, first in the entry level home price levels and then cascading into higher home prices. In addition, it should have a positive impact on our already low inventory and stabilize, if not raise home prices.
- Re-instate higher FHA, Fannie Mae and Freddie Mac loan limits enacted in 2008. This will help reduce inventory and improve liquidity in the mortgage market. Benefit to Houston: Many newcomers to Houston last year were unable to buy a home because the home they moved from had not yet sold. This provision when combined with #1 and #3 should provide relief for current Houston residents who cannot buy a home until the one they own [perhaps out-of-state] sells.
- Interest rates have come down 125-150 basis points making interest rates very attractive and more affordable. Put interest rates and the tax credit together and those wishing to buy a home should capitalize on this moment in time when incentives spell opportunity.
Benefit to Houston and The Woodlands: Lower interest rates have always brought more buyers into the market as more people qualify for houses.
- Foreclosure mitigation. The bill has over $50 billion for foreclosure mitigation, with Geitner’s Treasury plan signaling that the second half of TARP and TALF will be used to mitigate foreclosures through a government guarantee, drive down interest rates by buying another $200-300 billion of mortgage paper from the GSE’S thereby freeing them up to do the same with new mortgages.
Benefit to Houston and The Woodlands: Any type of effective foreclosure mitigation will benefit Houston because inventory is already at its lowest since 2004 and having fewer foreclosures come on the market than normally will simply place Houston in a better inventory position. This will aid in home price stability and possibly keep Houston homes appreciating even if ever so slightly.
In short, the American Reinvestment and Recovery Act was designed to stimulate ailing markets. Houston is not ailing but real estate has slowed because we get the same press as others – nationally, and confidence is a strong factor in purchasing. While we are not immune to the national news, we also are not immune to a national stimulus package. This package should be a spark plug that ignites home purchasing nationally but also in Houston and The Woodlands. Amen
