This is the first of a two-part series on the effect of the Obama administration’s stimulus package on our local real estate market.  Part one is directly primarily towards first time homebuyers, but should be read by everyone since it’s content will impact move-up buyers as well.

In an effort to help stimulate the U.S. housing market, the Obama administrations Stimulus package included four specific items that were sought by the National Association of Realtors (NAR).  The include: 1) conforming loan limits will be raised to $727,000 in high cost areas, 2) the first time home buyer tax credit will be raised to $8,000 with NO PAYBACK [a true credit]; 3) interest rates have come down 125-150 basis points, and 4) the bill has over $50 billion in it for foreclosure mitigation.   The Treasury Department plan is signaling that the second half of TARP and TALF money 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 Government Sponsored Enterprises (GSE’s) thereby freeing them up to do the same with new mortgages.  Fannie Mae has already agreed to lift the cap of 4 investment properties eligible for loans and raise it to 10.

In addition, the package preserved already existing homebuyer advantages – which some tend to forget is always on the table when these negotiations start up again – mortgage interest deductibility, real estate tax deductibility, and the $250,000/$500,000 cap gains exclusion (an overall package worth more than $100 billion and for some a very attractive funding source for their pet projects).

Any first time homebuyer who has been even remotely considering purchasing a home should do so in the next four to five months since the tax credit is scheduled to expire in December 2009.  I anticipate that a return of first time buyers into the market will have an immediate impact on the sale of existing homes (specifically condos and town homes.  This in turn will enable those sellers to re-invigorate the move up buyer market.   While extremely doubtful that we will see a rapid spike in home prices nationwide, we should experience a fairly bullish market in the DC metro area.  In our region, new home starts are down to near record levels, unemployment remains below five percent, and job growth will continue due to the increase in government jobs and ancillary activities as the stimulus package kicks into effect.