Well the federal stimulus package was passed by Congress yesterday, but will any of it help the local housing market? The most important piece of the bill regarding real estate was raising the loan limit on conforming loans from $417,000 to $523,750 in Greater Boston. The average price of a home in Newton is somewhere around $900,00 and $1,000,000 in Brookline so a $523,750 cap seems perfect, right? Apparently, Congressman must already have or want a home on the Vineyard or Nantucket because the loan limit there is $729,750. These new rates are also in a category called “expanded conforming”- translation- they can be changed, hopefully the limit will be made higher. Presently the conforming rate is around 5 1/2% the expanded conforming rate is 5.74% and the jumbo is around 6 7/8%: a huge difference in mortgage payments.
What does all this mean for Newton? If the average price of a home is $900,000, a buyer would have to have a 42% down payment equivalent to approximately $375,000 to qualify for the expanded conforming rate. Well that seems doable doesn’t it? It was not unusual a few years back for this to be common because housing prices were rising; buyers sold homes at much higher prices than they paid and used the additional equity as a down payment for their next house. This is simply not happening now; while Newton/Brookline have been spared a huge drop in values, values are off from their peak in 2005. Savings accounts have been decimated, jobs are being eliminated, bonuses cut, food/clothing prices are rising. We need more relief. We need to impress upon our Congressman and Senators that we need the relief here in the western suburbs, raise the conforming rate back to $729,000 like it was part of last year. A million dollars may buy a mansion in the mid west – here, you simply get a nice house.