House passed the $700 billion Emergency Economic Stabilization Act of 2008!!

It Passed!

Second time was certainly a charm! With a vote of 263 to 171, the House passed the $700 billion Emergency Economic Stabilization Act of 2008 today. The Senate approved the same bill Wednesday night by a vote of 74-25. Soon after, the President signed the bill, officially passing the far-reaching legislation.

I know the question we are all asking ourselves right now is how is this going to affect all of us. How will it affect our retirements? How will it affect the mortgage crisis? How will it affect our portfolios? The answers to these and other questions will only be answered over time but what I can tell you is that the legislation is a critical step toward stabilizing our markets. The main goals of the act are to:

- Shine a new light of scrutiny and accountability on Wall Street including a curb on executive pay for companies selling assets or buying insurance from Uncle Sam. For example, any bonus or incentive paid to a senior executive officer for targets met would have to be repaid if it's later proven that earnings or profit statements were inaccurate. The bill also underlines the Securities and Exchange Commission's power to change accounting rules on how banks and Wall Street firms value securities, and directs the agency to study the issue. Some observers argue that tight accounting rules are a major reason for the credit crisis in the first place. Others contend that changing the so-called mark-to-market rules will just bury problems lurking beneath the surface and could further shake investor confidence in the already battered financial sector.
- Let financial institutions sell to the government their troubled assets, mostly mortgage related which would allow the Treasury access to the $700 billion in stages, with $250 billion being made available immediately.
- Provisions that support taxpayers including one that would direct the President to propose a bill requiring the financial industry to reimburse taxpayers for any net losses from the program after five years. And the Treasury would be allowed to take ownership stakes in participating companies.
- The bill would set up two oversight committees. A Financial Stability Board would include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director, the Housing and Urban Development secretary and the Treasury secretary. A congressional oversight panel, to which the Financial Stability Board would report, would have five members appointed by House and Senate leadership from both parties.
- The bill calls on federal agencies to encourage loan servicers to modify mortgages by a number of means - including reducing the principal or interest rate. It also extends a temporary provision that exempts from federal income tax any debt forgiven by a bank to a borrower in a foreclosure.
- Provide tax breaks for the middle class including three key tax elements. It would extend a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels. The legislation would also continue a host of other expiring tax breaks. Among them: the research and development credit for businesses and the credit that allows individuals to deduct state and local sales taxes on their federal returns. In addition, the bill includes relief for another year from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called "income tax for the wealthy."

I agree with NAR’s stance on this subject that we are gratified that the government recognized the importance of passing the Emergency Economic Stabilization Act of 2008. The health of the nation’s housing market is critical to the financial well being of every household in the country and that, of course, is front and center here in California. I believe the legislation will help restore the liquidity in the mortgage market, which will stabilize the housing market and protect home owners.

With this good economic news now in our hands, let’s take a look at last week in real estate:
- Peninsula—People seem to be unsure during this uncertain economic times but savvy buyers are contacting their Agents and many feel now is the perfect time to make an offer. We are starting to see more upper-end listings come on the market which is a good thing as our upper-tier has been plagued by low inventory. Half Moon Bay is reporting that listings are up at the highest level in several years and at the same time there are at least six distressed properties on the market. According to our Half Moon Bay Manager, “This is the best time to buy on the coast in years.” Our Menlo Park El Camino office called this market “A tale of two buyers…Confident and not confident.” It’s business as usual for those who have confidence and those who don’t may miss out on one of the best buyer’s markets in generations.
- San Francisco—Our Lakeside office is noting that we are getting more listings and navigating through more obstacles in transactions. Our Market Street office noted that some buyers backed off this week due to the issues in the finance sector but now that things have worked themselves out we expect them to return. Our Van Ness office noted that we remain on a reasonable pace for the current climate with five out of nine deals this week under $900,000 and one large sale for the week.
- Silicon Valley—Consumer confidence seemed to be hindered this week as many of our Silicon Valley consumers awaited news of today’s act. In doing so, this week floor calls slowed a bit as did open house activity. But I believe now that we can all get off the couch and away from our TVs (awaiting the act’s approval), we can get back to work and we’ll start to see more deals closing.


Overall I think this new Emergency Economic Stabilization Act of 2008 puts us on the right track. No, it isn’t an overnight answer but I believe the efforts of our legislation are pointing us in the right direction and are putting us on the right path towards long-term economic growth and long-term prosperity.

The government’s resolve to take action that is focused on fixing the credit crisis is to be commended, particularly because these major moves to add greater liquidity to the market should have a beneficial effect on homebuyers/sellers and the real estate industry as well. Keep in mind housing represents 20 percent of the GDP so it remains an important part of our national economy.

Let’s watch as the details unfold over the next few weeks and we’ll wait to see whether the $700 billion in aid is our nation’s answer to prosperity.

Until next week,
Monica

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