UPDATE (NOV. 5, 2009): Read this for information about the newly extended and expanded $8,000 home buyer tax credit which is is open to more than first time homebuyers and extended to May 1, 2010.

With it almost certain that we will see an $8,000 tax credit for 1st time homebuyers coming out of the new stimulus bill (I will fully report on it in the coming days once I have more details, but for now you can see what we now know in Senate and House reach compromise on stimulus bill or Update on Senate version of $15,000 homebuyer tax credit).

Between the homebuyer tax credit and the Federal Reserve continuing to buy mortgage securities, with the hope or driving mortgage rates lower for new purchases and refinances, it should certainly spur some demand in the market.  How much is anybody's guess, but I've heard estimates of 200,000 additional home sales could be directly attributable to the homebuyer tax credit alone.  Now, over the coming weeks, we should be hearing a lot more about what to do about reducing the number of foreclosures coming on the market, to help manage the supply side of the equation.  As I've said before, foreclosures tend to be a very localized phenomenon, but the hardest hit areas have a major issues with an abundance of distressed property on the market.  Reducing the supply of them is a major concern in terms of stopping the decline in national real estate prices.  Plus helping homeowners retain their homes by avoiding foreclosure can contribute to the health of neighborhoods and reduce blight.

So what's the administration plan to do that?  Here are some (limited) details from The Associated Press:

Details of the plan were not final but were expected to be unveiled in the coming weeks, according to the people who declined to be identified because the details were not yet complete. The effort would be part of a plan to spend $50 billion on foreclosure prevention and establish U.S. standards for modifying home loans.

The Obama administration has several ways it could spend money to stem foreclosures.

It could follow a proposal by Sheila Bair, chairman of the Federal Deposit Insurance Corp., who wants to give banks an incentive to reduce borrowers' payments by having the government absorb some of the losses should loans fail again.

Or, the government could direct federal dollars to loan modifications. If a lender, for example, agreed to reduce a borrower's rate, the government could subsidize a further interest rate drop.

Still, deciding who would qualify would be a challenge, especially as foreclosures continue to soar. More than 274,000 U.S. households received at least one foreclosure-related notice last month, according to RealtyTrac Inc.

The Obama administration also is expected to back a push in Congress — opposed by the mortgage industry — to let bankruptcy judges alter the terms of primary home loans. Earlier this week, Obama said it "makes no sense" that judges are not allowed to do so.

Some of this (like the part about judges altering loans) is a political hot potato, so there is no easy and clear solution that everybody can agree on.  Will they be able to create a plan that works (or at least helps)?  Time will tell.....

More information to follow in the coming days, and more directly what I think the impact of the stimulus package will be on the local Boston real estate market, so subscribe by email or RSS at the top of the page to get all the latest updates.  

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