Experts Agree That The Housing Bill Should Help The Economy

This article was taken from Utah.Business. I thought the article gave added insight into what others are thinking about the bill. It seems to be mostly positive.

President Bush signed a massive housing bill last week, a measure considered to be one of the most significant housing legislation acts in decades. H.R. 3221, the Housing and Economic Recovery Act of 2008, promises to help thousands of struggling homeowners and stabilize the financial market.

But how will this new housing law affect Utah homeowners and businesses? The Salt Lake City Chamber thinks the bill will be the boost Utah’s economy needs. “As a business community, [Salt Lake Chamber members] feel it will have some very positive impacts,” said Chris Redgrave, vice president and general manager of Bonneville Salt Lake Radio and chair of the Salt Lake Chamber’s Board of Governors. “Not only for the nation, but for local home owners, potential home owners and Utah businesses.”

One of the bill’s key provisions gives first time homebuyers a $7,500 dollar-for-dollar tax credit. This, according to Redgrave, is the incentive that Utah’s hesitant homebuyers have been waiting for. “The tax credit provided will give incentives for qualified buyers to enter the market. The increase in buyers will put an increase in demand of homes,” she said, adding that the incentive couldn’t come at a better time for first time buyers. “This is a great time to buy because the interest rate is still really good at around 6 percent and there’s a large selection of homes in the market. It doesn’t take much to get the ball rolling and the federal government has done its part. Now it’s up to the savvy Utah consumers to take advantage of this benefit.”

Chris Gamvroulas, Salt Lake Chamber Board of Governors member and president of Ivory Development said that the bill will boost many other industries beyond the housing sector. “We suspect that this will stimulate not just the home buying, but many other sectors of our economy, like manufacturing, service and the labor pool. This will be a tremendous help.”

The bill also permanently increases the FHA loan limit from $417,000 to $625,500 effective January 1, 2009. Chris Sloan, president elect of the Utah Association of Realtors, said that by increasing the FHA loan limit, more people will be able to move into their dream homes. “One of the biggest reasons we had the slow down is because of the difficulty for people to obtain mortgage funds. This will make an avenue available for people who need affordable, stable mortgage financing,” he said. “It also allows people in the starter home to get affordable and stable financing to move up into those more expensive homes,” said Sloan.

Sloan added that it will also help homeowners who are facing foreclosure, “by allowing them to refinance to a stable, affordable FHA mortgage,” he said, adding that the bill is likely to prevent Utah from experiencing the high foreclosure rates that the rest of the nation is facing. “This bill will help thousands of Utah families achieve the American dream of home ownership,” said Sloan.

The New Housing Bill

Monday, President Bush signed the Housing and Economic Recovery Act of 2008 into law and the press jumped on the obvious storylines:

1. First-time home buyers get a $7,500 purchase "credit"
2. Conforming loan limits move to $625,000
3. Delinquent homeowners get a lifeline from the FHA
4. Local governments get federal money for buying and restoring foreclosed homes

However, their are three problems with the new bill that you may want to know about. The first is in a section called "Revenue Offsets", there's an important tax implication. The new housing law changes the way in which capital gains exclusions are calculated on the sale of a residence.

Under the old system, a taxpayer was entitled up to $250,000/$500,000 of tax-free gains from the sale of a home if filing separately/jointly provided he lived in the residence for at least 2 of the preceding 5 calendar years.

Savvy homeowners exploited this verbiage, moving from home-to-home every 2 years to avoid paying capital gains.

The new law thwarts this tactic.

Capital gains exclusions are now calculated by taking the capital gains on the sale of the home and multiplying it by a ratio of how long a person has lived in a home, by how long that person owned the home.

In the example above, a person living in a home for 2 of 5 years would be entitled to 40 percent of tax-free gains on a home sale instead of all of it. As always, however, it's best to talk with a qualified accountant about how tax code changes may impact you personally.

The new capital gains rules go into effect starting January 1, 2009.


The second problem, is that the bill eliminates down payment assistance.

Currently under FHA you have to put 3% down and it can come as a gift from the seller. Which means you can essentially buy a home with nothing down (100% financing).

The bill contains a provision (SEC. 2113) which forbids FHA from insuring mortgages in which the borrower’s downpayment comes from a private downpayment assistance provider.

This will take place October 1, 2008. So, in other words, as of that date you can no longer do 100% financing when buying a home. You have a down payment.

The third problem with the bill, is that the down payment on FHA will go up from 3% down to 3.5%.

This will also take place October 1, 2008.