This week Realtor.com proposed another interesting “Hot Topic” for their “Let’s Talk” blog (at talk.realtor.com).  The topic: How will the stimulus package affect the Real Estate market, and the economy as a whole?  Read on. . .

The American Recovery and Reinvestment Act of 2009 that President Obama signed into law on February 17 combines $787 billion worth of government spending programs with tax relief over the next few years.  The goal: to pull the U.S. economy out of its deepest recession in more than three decades, and to help prevent a much deeper downturn some fear could rival the Great Depression of the 1930s.

One of the most-talked-about provisions of the stimulus bill is the increased (and extended) tax credit for first-time homebuyers.  Last year’s homebuyer tax credit offered a $7,500 tax break, which had to be paid back over 15 years, for first-time homebuyers (people who hadn’t owned a home in the last three years).  The new credit is for $8,000 and it doesn’t have to be paid back.  It applies to first-time homebuyers who buy a home in 2009.   Prospective buyers making $75,000 a year or less (for single filers) or joint filers making $150,000 or less are eligible.

But the act should help homeowners, home sellers, and home buyers in other ways, too.  If middle-class tax break provisions like lower payroll taxes, a one-year increase in 2008 income exempted from the Alternative Minimum Tax, tax breaks for small businesses, bonus checks for retirees, and bigger tax credits for home and car purchases and college get consumer spending (which accounts for a good 70% of the U.S. economy) rolling again, then we could see ripple effects through all industries -- including real estate.

Probably more important for the housing market will be President Obama’s new plan to stem the tide of foreclosures, which he announced right here in the Valley on Wednesday.  As I’ve blogged about before, stemming the tide of foreclosures -- which push housing prices down -- is the first step toward a real estate recovery.

According to MarketWatch, Obama’s plan, which aims to help as many as 9 million homeowners keep their homes:

·         Allows 4-5 million homeowners to refinance via Fannie Mae and Freddie Mac.

·         Establishes a $75 billion fund to reduce homeowners' monthly payments.

·         Develops uniform rules for loan modifications across the mortgage industry.

·         Bolsters Fannie and Freddie by buying more of their shares.

·         Allows Fannie and Freddie to hold $900 billion in mortgage-backed securities -- a $50 billion increase.

According to the Phoenix Business Journal, Obama said his plan will:

·         Create incentives for lenders to modify subprime loans.

·         Mandate that any institution receiving government assistance abide by the program’s guidelines, which will be in place two weeks from today.

·         Limit mortgage payments to 31 percent of the borrower’s income.

For video of Obama’s speech in Mesa, click here.

Also important for the real estate markets will be Treasury Secretary Geithner’s plan to “jump-start lending, clean up the balance sheets of banks, provide relief to housing markets and restore confidence in the government’s response.”   While too-easy credit is partly the reason why we’re in this mess to begin with, for many would-be homebuyers, credit is too hard to obtain now, even as interest rates remain at historic lows.  If the Treasury Department can restore confidence in the health of the U.S. financial system and get banks to start lending again, and prospective homebuyers can then get mortgage loans, that will go a long way toward speeding the recovery of the country’s real estate markets and economy in general.

What do you think? Click on the “Comments” link to join the discussion!