Stimulus Everywhere; Jumbo Limit Raised

Net net it's a positive, but really only on the margins, and to a small set of buyers in NYC. If you're buying a $900K+ apartment without making a massive down payment, it has no impact. If you're planning on buying a 1BR or studio, it helps a little bit. (Calculate the monthly savings of 100-125 bps for $208K)

If you were planning on making a huge down payment and only taking on a conforming loan, you can lower your down payment slightly and raise your mortgage, but in this case you have so much cash that it doesn't matter much anyway. Not to mention, while your down payment goes down, your monthly cost would actually go up because the mortgage rate is higher than the cost of using cash.

I agree anon! I just added an update right after you commented to illustrate this point more clearly. Its really only for products sub $800K, unless you are putting way more down, and that is just not the masses.

It may incentivize those who already intend to purchase, to pull trigger, as it may increase their confidence a bit in their minds.

Noah,
The non conform limit raised is HUGE. Also a little discussed item known as congestion pricing will most likely be implemented @ $8 on weekdays for cars entering below 60th. These are 2 very significant developments sure to effect Manhattan real estate.

great news for me!! I love it!!
Gold going to 1000 NOAH!!

918 last in spot and looking strong!!

you were right!!

Rgds

Steve - no, it's really not huge. Perhaps you would like it to be huge or can explain how it will be huge, but see my first post. It will have a marginal impact at best. It really only helps buyers of apartments between $500K and $800K. And even then, not by much.

How does congestion pricing make all that much of a difference? Anyone coming into the city on a bridge or tunnel (except 59th St. and from Brooklyn) pays net $2/day (and less when tolls go up). Even if you were paying the $8 it is total $1600 - $2000 per year. Not exactly a huge change.

Besides, I never understood how it would affect people substantially since anyone driving into Manhattan has to park there at $20 to however much per day. The people who are most affected at the tens of thousands of city employees who can drive in and park for free. And I don't see $2000 making Manhattan affordable to firemen, police and/or city bureaucrats.

But yes, the change in conforming loans will help the 1BR and expensive studio market. But then that is the same market that will get hit the worst if the market softens. So if things really aren't all that good, it probably won't stop damage being done to that part of the market.

Hi, I have not been able to find any articles confirming that the conforming loan level has been raised. Can you provide a link to where you found this information?

hey anonymous....

Bankrate.com for confirmation..

Might not be huge but a bit of a push..

Rgds

I JUST POSTED AN ADD-ON WITH LINK TO STORY ON WSJ VIA CALCULATED RISK!

Cities with higher purchase prices may be able to get a even higher loan limit. Yes positive, but impact to be limited! Not a saving grace by any means to the national housing problems and resulting losses of derived securities occuring as a result. Still a debt crisis out there.

You all seem to only be taking first time purshases into account. For buyers that bought a 1 bedroom 5 years ago and want to upgrade to a 2 the equity in the current apartment rolled over to the new one plus the new conforming loan limit might get tehm to the purchase price. These buyers would be putting down much more than thee required 10 or 20%.

Thanks. My googling has revealed that has not been signed into law yet so it is still tentative and some news source indicate that it may not take effect for 3 to 6 months. I think it will be a nice push for 1 bedroom in Manhattan and buyers looking to buy in the other boroughs.

yes, but how many actual buyers are out there that fit into that criteria? Again, this helps, no doubt, but I just think it is not as far reaching as some people may thinkg.

to say this will save Manhattan real estate from feeling any ill effects from a general recession, is absurd! It will certainly help, but lets not forget why Congress is doing these reforms in the first place!

And lets not forget there are plenty of criticisms AGAINST raising the Jumbo limit! There could be problems from this move if people who cant afford to buy, up their budgets because of this incentive. This should be used by prospective buyers who CAN afford to pull trigger while keeping their budget in tact and NOT for those to RAISE their budgets and buy more house! Thats a setup for disaster!

Something else to think about:
Reality Check on Raising Mortgage Caps Nobody in a high-housing-price state will scoff at raising the cap on government-sponsored loans to $700,000 from $417,000... However, mortgage banker Mark Hanson [says]: New borrowers still have to qualify. Fannie/Freddie is full doc only primarily. Without stated income for wage earners, it’s tough to qualify for a $700,000 loan. In 2005-2007, 70% of all jumbos were stated income for a reason: 90% of all stated income borrowers lied about their income to qualify. Refi’s will still have trouble due to values dropping in jumbo areas by such a large amount." (MarketWatch, Jan. 24th)

great point! This does NOT change underwriting standards and this raise in cap does not mean LAX lending standards!

That world is still over!

Do you think raising the conforming limit will bring down rates on those loans that are still jumbo? I'm getting ready to borrow 792,000 for a 20% down condo purchase. My loan it seems will still be jumbo, but I'm hoping that the smaller pool of jumbos will bring rates down.

Thoughts?

No. your lending rate is moving to an entirely different set of variables, but not this proposed legislation.

Anon,
I'm already huge....but getting back to the argument, yes studios and 1 bedrooms WHICH MAKE UP 60% OF THE MARKET will benefit, the other 40% will somewhat benefit. How anyone can argue that this increased buying power and higher loan availability will not have a big impact is beyond me. All this new data, Fed rates, govt stimulus, jumbo limits, financial stocks recovering all indicate to me that asset appreciation lies ahead.

Does anyone know if the raised limits will affect jumbo hybrid loans or will it just help jumbo 30-year fixed loans (FN and FH only purchase fixed rates)? And in anticipation for the increased limits, will that help jumbo rates leading up to enactment?

Steve - Okay, I like your enthusiasm, but a little bit of math will help you understand.

WHO BENEFITS?

1. If you are buying a $500K apartment or less, this has ZERO impact. Why? Because the max mortgage on a $500K apartment is, say, $400K now, which is already conforming.

SO THIS LAW DOES NOT BENEFIT BUYERS OF APARTMENTS THAT COST $500K OR LESS!!!!

2. Now... supposing the limit is raised to $730K, for a normal borrower (20%) this gets you just over $900K.

So - the TARGETED HOMEBUYERS AFFECTED are really only those buying apartments between $500K and $900K.

Is that really 60% of the market, Steve?

I didn't think so.

Hopefully this helps you understand. Buyers of apartments $900K unless they are willing to put up a very large down payment.

Steve - At the end, meant to say:

Buyers of apartments for under $500K don't benefit AT ALL.

Buyers of apartments >$900K don't benefit AT ALL unless they are willing to put up outsized down payments (the pricier the apt, the more down payment they need to put up to benefit).

If you have any arguments to the contrary, happy to listen, otherwise I'll assume you understand now.

it could help someone like me a bit who has a 5/1 arm at 5.35 on a $620k 1br condo with $440,000 in mortgage debt left. Previously, i could only convert $417k to a 30 yr fixed.

Anon - it can help a buyer of $900k plus apts on a Refi if they have the loan paid down below the new max - converting from a jumbo to a conforming. could be huge.

im tired of the govt helping keep pushing an OVER inflated real estate market into more overinflation....its gone up 200 to 500% in the last 10 years and these greedy sellers are crying wold that there properties arent selling at those overinflated prices so the govt steps in to help BUT when does the govt help first time homebuyers that cant afford these ridiculous prices....answer NEVER....sickening....

I just think that, what we are experiencing in Manhattan, at least in established neighborhoods, (e.g. West Village, tribeca, upper west side, etc.) is not enough supply to satisfy demand. I can't see how the economic stimulus package and low mortgage rates can hurt demand, if anything they should help to fuel it. While it is true that Wal Street is dicey, there are multiple streams of demand at play in Manhattan; foreigners, wealthy retiring baby boomers, celebrities, and wealthy individuals from other industries.
In the early 90's, quality of life in Manhattan was terrible, and crime was off the charts. Anyone who could leave Manhattan did, no one was considering retiring here, and no one of means from any emerging markets was buying in. That is not the case today. If we were to see a return to those qualities of life and crime, then I believe we would see an erosion of demand. As it stands now, the dollar is cheap, mortgages are cheap, and the truly wealthy are not impacted each time stocks go up or down.
I see stable pricing in Q1, and nice uptick in volume and price in Q2.
What do you think, Noah.

BRM - you are correct that it helps folks refi, but again it'll help folks on larger apts only if they already have a small balance outstanding. In any case, this shouldn't have an impact on prices.

to S:

I would argue that one thing that has made Manhattan more safe and desirable is the local economy. One of the reasons I feel safe is the huge number of people out on the streets.

However, if the economy turns down, and jobs are leaving the city how would that affect things? Goldman sachs are due to cut the bottom 5% of their workforce (1,500 jobs) and I believe 25,000 jobs have been lost so far in wallstreet from the subprime mess...

When the economy declines.. crime comes in. Hopefully the NYPD can crack down

Someone who wants to move up from their current studio or one bedroom to a more expensive apartment usually first needs to sell the smaller apartment. I could see this having some impact in that it may assist those holding units to sell them, thereby enabling them to use the profits for the next purchase. It may also help some young people and couples start the process of home ownership. I don't think it's a huge step for our market, but it may help.

As for street traffic, tourisim was at an all time high in 2007, and projections are expected to be even higher in 2008, so there will be plenty of people on the streets. Wall Street layoffs are problematic, to be sure, however I am not so sure that they are as powerful a force on the city's economy as they were in the 80's and 90's. Other industries, such as legal, advertising and fashion are doing well, and from what I am reading, many of the wall street jobs are in support or at the lower end of the ladder, so that would seem to be a drain on demand in Brooklyn and Queens, not prime Manhattan.

As far as the question of overall impact of the stimulus being applied so far, here's my take. The Jumobo loan fix will incrementally help some potential buyers in "high home value" markets as has been already discussed here. But it ain't gonna have a huge economic impact. Lower rates will do very little for credit card, heloc, commercial real estate or business loan borrowers as banks will be loath to lower their lending rates and or they will make up for lower rates with much tighter lending standards. The loans they do make will enjoy better spreads and lower risks, which will eventually increase their available capital and give them more confidence to lend (or risk diluting their return on the bigger pile of capital they have rendering them takeover bait). This process will take a long, long time. The same re-liquification of banks happened in the early 90s and made bank stocks a slam dunk for 5 years there-after. The re-liquification of the consumer is a whole other matter. There are two ways to do it...tax cuts....we just got a small one that will get blown through very quickly and the biggie mortgage re-financing. Mortgage refinancing rescued the economy in the early 90s....ten years before long rates were near 20% so there was lots of juice in refis. This time many people already refi'd when Fed Funds were 1% during the dot com 9/11 recession. There will be less juice in this grape. I feel strongly the Fed will lower rates enough and hold them down long enough until people who refi'd after 9/11 get a chance to do it again.....if they have enough equity to do so....which they should because recent buyers may have no equity, but those who bought pre 2000 have tons.

Remember, raising the CAP is not a done deal yet:

"We think there will be a tradeoff," said Anne Mathias, policy director of research for the Stanford Group, a policy research firm. "It is possible that lawmakers in the House will accept the unemployment and food stamp spending provisions in exchange for the Senate accepting the changes to Fannie Mae and Freddie Mac's authority."

Politicians outside NY and CA could care less about the CAP, and may trade off against the unemployment benefits. In reality, why should all the US tax payers go along with this since the average price of a US house is ~200K

REsponding to "s"

Financial jobs are not a big factor in NY???

Sorry, but NYC is much more dependent on the financial sector today than it was back in the '80s. More to the point, not just is a higher percentage of the high-income jobs in NY now finance related, the salaries in that business are so great that the City's dependence on taxes of Financial industry salaries has probably doubled from the '80s. This has benefited the city greatly in the last few years as we have been able to expand services and expenditures while still balancing the budget. But those salaries are more volatile than other industries, and changes in that industry, if they happen, will reverberate more greatly now than they did in the past.

anon,
People...I would be a buyer now, that is my position. I am an owner of studio condos that I rent out and have made a small fortune. If I thought that I was going to lose equity I would be selling. Look at the stimulus, look at the inventory levels! It doesn't take a brain surgeon to figure it out. The naysayers talk alot but in the end they never have or own anything.

Steve - it's clear you would be a buyer. So, please, go ahead and buy buy buy!!!

But why would you be on a messageboard pumping up the market if you were a buyer? Are you trying to get people to agree with you? Or did you recently buy? Or are you a broker? Or do you simply benefit from prices going up?

Anyway, I've given you a well-reasoned analysis of the situation and you haven't given me anything. So, here's to your optimism, Steve. Hope it works out for you.

Steve,

I believe there is "smart" money and "dumb" money. I believe its the "smart" money that is holding off and seeing the whole picture.

you say:
"The naysayers talk alot but in the end they never have or own anything."

I don't think this true, for my own personal situation I am early 30's, 1 million in cash in the bank, purchased real estate in 2000 in europe when it was fairly priced, income of 250k a year...

I truely believe its time to pay the piper.. wait several more months to see if more layoffs/writedowns are announced before looking at buying. This cheerleading nonsense is what got us in this mess in the first place.

" smart money ".... " dumb money " .......
guess we all know which one of those categories u put yourself in... and renting 4 sure.... paying the piper will be inevitable and healthy..but i dont think you can predict manhattans future on that basis.. there are a lot buyers here who would not agree with your statement and would be quite offended at such a comment. Todays markets are very unpredictable and the trend here has been strong and sustainable till just recently. If you have a crystal ball you should have more than 1MM in the bank.

Rgds and Respectfully yous ... a soon to owner of a Manhattan Condo!!

To johhny,

The difference is, I have a million in the bank and you have a million in debt :)

but yes, no one can predict the future but one of the "golden" rules of finance is "past performance has no bearing on future performance"..

S - Get with the program!! Anything other than doomsday comments delivered with a sneer doesn't play well here!! The world is ending and the smart money is timing the market!! Anyone who reads this blog can see that!!!

BTW, I paid cash recently for a sunny 3-bed in the Village. You heard it here first - there is no quality inventory in Manhattan, and the pent up demand is overwhelming. Prices per square foot for resale co-ops will be up - yes, up - in 2008 for Manhattan below 96th st, dumbfounding everyone except those who know that supply and demand set prices. The real estate problems are in Florida and So Cal where massive overbuilding of homes that no one wants and are poorly made and that are far from high-income jobs is causing a massive drop in real estate prices nationwide.

None of this has anything to do with Manhattan, and only a little to do with the metro area broadly speaking. Go ahead, show me the listing of a cheap, central 3-bedroom apartment. You can't do it.

Booo Buyer - doomsday only. I just said the JUMBO limit being raised was positive! Give a brotha some credit.

Anyway, you make goo dpoints except that supply & demand set prices. DEMAND sets prices, not supply! As even in an environment with tight inventory, you can see prices down. Its only in environments with fierce seller competition, that you will see serious price declines like some markets outside Manhattan.

Obviously we dont have that situation here in Manhattan right now. But I ask ever so gently: what if that TOTAL INVENTORY # that I now have on the site reaches 7,000 by year end? Would you get a bit nervous? Trust me, I hope it doesnt as I want a healthy market here and a bear housing market here doesnt benefit me in any way.

But, I see things, I have opinions, and I publicly discuss them. BTW, what did you pay for your product, size, monthlys, view?

Thx for comment as your comments are ALWAYS appreciated! Im being serious here, not sarcastic. I read all your comments for a long time now.

Seems like all these angry cheerleaders are the ones who just bought. Go figure! Then they come onto messageboards to try to persuade the world and themselves that they didn't something stupid. You may recognize this phenomenon - it's called "buyer's remorse".

I like your style, buyer. The fact is that, people buying in Manhattan at 2,000,000 and above don't view their home as a part of their "investment" portfolio. Trying finding a quality two bedroom in Tribeca or the West Village that is not a new development. Inventory is tight. I remember last year, when the doomsdayers were out in force, 101 Warren and 200 chambers came to market, and both sold out. the fact is that for Manhattan in established neighborhoods, prices are very stable, and will probably go up come Q2.

I made the above post..Also, property is being snapped up and turned into botique hotels left right and center. Is that happening because Manhattan has lost its desirability? I think not. There are a lot of HNW individuals that want a place in Manhattan, and believe me, they are not worried about 200 point shifts in the Dow.

anon4you:
1st - Im sure youve heard this one before because Ive learned this is very true of these times / markets!!

“The market can remain irrational longer than you can remain solvent.” - John Maynard Keynes

second im not quite in my 30's so risk is not as big an issue as it would be 4 u....

im too tired too argue but I will say that i wont be 1MM in debt.

Renting no door man / no roofdeck / no amenities what so ever..for 2500 in soho... Thompson and Prince..... have been saving since graduation and with my some help and wise investing I can come up with 20 % of 500 k - to get a nice studio. So ..after a 30 yr fixed at 6.75 (asuming ) thats about 2500 plus CC and tax = 3200 per month... so for 700 a month or approx 8k a year..I owne in Manhattan ... and have all the amenities I could want..... forgot the tax breaks as well...ooo ,and my GF is moving in and will help we with the monthly as she also has a 2K a month rent...Can someone tell me what Im missing..cause it sounds good to me... all i can think of is my 8k a year plus my 20% or 100K -
in a CD or equivalen..at 5.5 % which is about 6k a year in interest plus my 8k - so 14 k a year is my option .....??????

anon ???

interest rates are much lower tooooooo

Johnny, not being sarcastic, but are you sure you want to live with your girlfriend in a studio? Together in the same room every second you're both home? You may want to keep saving long enough to get the 1br...

haha... how many times have i heard that one!! nice one tenemental..

this is the thing, shes graduating law school next year.... she has a rich mom who currently pays her rent ( 2k a month ) ...shes a little hot...and my parent have a house in Stamford if i need to get away...

Just for a year.... u dont think its worth it if shes payin half my mortgage ???????

sorry Noah for adding nonesense too this blog, I am very respectfull of your web page , but anon4you's arrogance upset me a little.

Im going home!!

have a good night.

Gold closed at 914... bye the way..

I wonder if anon has any ??

Rgds

Noah- re: 7,000 inventory.

I don't know. What was inventory in 1992-94? I think it was 15k plus. But I forget where I read that. 7k inventory doesn't seem like a lot. Phoenix has 60k inventory. Heaven only knows what Florida or So Cal has. They need a hurricane or earthquake to get supply and demand in balance. But 7k for Manhattan doesn't seem like a problem. Wasn't inventory 8k only 2-3 years ago?

I bought because I looked for a year, saw nothing attractive available, and decided that regardless of the general negative headlines, It was more important to follow my family's life stage than time the market.

What did I pay? We paid just over 1.9 for 1750 ft (internal room dimensions as I personally measured, you are correct on fake sq footage numbers), set-back balcony, landmarked southern city view from every single window, 3 bed, medium high floor, central Village, below average monthlies, doorman bldg. Only thing we didn't get that I wanted was pre-war. (White-brick type bldg.) Other people can now worry about short term movements in the RE market. We now have a family apartment in central Manhattan and don't have to die of boredom in CT to raise a family.

I have looked on natefind several times since my purchase, as friends wondered in amazement at my poor timing, and I still can't find a sunny 3-bed under 2 mill., near transportation and in a top school district. If you know of one, please post it.

anon4you: "angry cheerleader ... remorse"

I own stocks too, and I am not angry I own them. I also have private equity and bonds. All investments classes go up and down, but mostly up over time. I also try not to have remorse over financial errors. No one gets it right all the time. Passivity and unwillingness to make a decision is also an error. Fear of remorse or being overly risk-adverse is a mistake as well. Good luck with cash, CDs and timing the real estate market.

Ok....lets talk $ and sense.

Nat. Debt 9.2 tril
2007 Deficit 600 bn
Tax Rebate 150 bn
Iraq War 168 bn
Other stimulus ??? bn
Proj 2008 Deficit 1.0 tril
The dollar is down...again

The tax rebate will give up to $600 to single americans with incomes up to 75k and $1200 to couples up to 150k. It only applies to those with earned income so many on social security wont see a dime. It also won't be hitting people's mailboxes until May. From reading the comments on various posts about incomes, I doubt many if any of the readership here qualify. And just how much stimulus is this really? 1 mortgage payment on a 150-200k loan? Is this enough to save a default? Maybe if you have a 50k mortgage--and you are married you might make 2 or 3 payments.

At this moment every citizen of this country owes over 30k due to nat. debt alone. Only about 20% of the population has the ability to pay this if it were demanded today. The majority of the readership of this blog is probably in the group that could, so maybe this doesnt affect Manhattan and similar markets at all.

So how far in debt does this country go to bail this thing out? Where does the money come from? We are in debt so we dont have it. Does the Fed print some more, and devalue the dollar further? Borrow some more from the Chinese and others? If these loans get called in how do they get paid back? Print some more money or borrow some more? Oooh wait, lets raise taxes! Those people really didnt need that tax rebate last year.

Throwing huge sums of money into stimuli that have so little impact on the root problems of this issue is sheer madness. Smell it piling up? Shovel some now or shovel more later...hmmmm....what if I'm too old to shovel later? Anyone care to shovel for me?

well said

Let them eat cake.

LOL...such simple words...as I recall they fueled a revolution and provided necks for the guillotine :P