Economy
Triggering That Chain Reaction

BY LAWRENCE YUN

Close to 80 percent of today’s prospective buyers have their house on the market. Most of them can’t get serious about buying until someone first takes their house off their hands. In other words, at least three quarters of the market’s potential demand is pent up until others start buying again.

It’s because of this demand that the federal government’s enactment of higher conforming and FHA loan limits in mid-February is so important.

Although it’s unlikely that these higher limits will trigger a surge in home sale activity, they will help spur sales in coastal and other high-cost areas where the old conforming loan limits were simply too low to make agency loans a realistic option for buyers. Now, with limits rising to as much as $720,750 (up from $417,000) in some areas, buyers can get the most advantageous mortgage pricing available rather than take out a costly jumbo loan or be forced to put together two loans in a piggyback mortgage package, a difficult task in today’s climate.

Higher FHA loan limits will help, too. They rise to the same $720,750 maximum, handing many first-time buyers the kind of financing they need to buy a home and pave the way for the move-up buyer.

Two other factors favorable to buyers — continuing historically low interest rates and notable price declines in some previously overheated markets — help set the stage for a return of consumer confidence.

But to really get the homebuying surge under way, there are a number of thoughtful proposals pending in Congress to which lawmakers will want to give serious attention. Sen. Johnny Isakson (R-Ga.) last year introduced a bill to give a temporary tax credit to home buyers, and Rep. Barney Frank (D-Mass.), chair of the House Financial Services Committee, is a chief promoter of federal down-payment assistance.

Passage of one or both of these proposals, perhaps as part of a second stimulus package, would go as far as possible to trigger the homebuying chain reaction that we’re all waiting for.

Lawrence Yun is chief economist of the NATIONAL ASSOCIATION OF REALTORS®.