Today's big economic news was January's Retail Sales data. It showed an unexpected surprise in sales, indicating that consumers were spending much more than thought. The data revealed a 1.0% rise in sales from December's revised decline of 3.0%.

Great news for buyers and sellers.

According to a release by the FHA today, the national floor limit remains at $271,050 and the ceiling for high value areas tops out at $729,750.  Guidelines have not been released, but will alert as more information is released. 

Warren Buffet says, "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful." While Mr. Buffet was writing about buying stocks, the same can be said for housing today.

Housing issues have permeated the economy both locally and nationally. This week, one index that tracks housing prices, S&P/Case-Shiller Home Price Indices, indicated home values fell the most since 1968, declining 18.5% in December from the year before.

The first component is directed toward homeowners suffering from falling housing prices who still have equity in their homes, but no longer have the 20 percent equity needed to refinance.  Under the plan, homeowners who have conforming loans owned or guaranteed by Freddie Mac and Fannie Mae will be allowed to refinance their homes, even if they do not have 20 percent equity left in the house. The U.S. Treasury Dept. estimates that about 5 million homeowners will be helped by this portion of the program.

The second component, known as the Homeowner Stability Initiative, is designed to assist homeowners who are “underwater” on their mortgages. The $75 billion initiative will bring together lenders, servicers, and the government so that all stakeholders share in the cost of the modification.  Primary mortgages would be reduced to monthly payments that do not exceed a 38 percent debt-to-income ratio, with the costs of doing so borne by the lender. The government and lender then would split the costs of further reducing the monthly payments until they were at a 31 percent debt-to income ratio. An important aspect of the initiative is that homeowners do not have to be delinquent to participate.

The Homeowner Stability Initiative also will create incentives for servicers, mortgage holders, and homeowners. Servicers would receive an up-front fee of $1,000 for every eligible modification meeting the initiative’s guidelines. Guidelines are scheduled to be released by March 4. Mortgage holders will receive an incentive payment of $1,500, and servicers $500, for modifications made on loans that are current but at risk of imminent default.

The final aspect of the Homeowner Stability Initiative is creating clear and consistent guidelines for loan modifications. The Obama Administration plans to work with federal agencies, banking and credit union regulators, and the private sector in order to develop loan modification guidelines that can be implemented across the entire mortgage market. While adoption of the guidelines will be voluntary for the private sector, all financial institutions receiving Financial Stability Plan assistance going forward will be required to implement the loan modification guidelines.

The government estimates that between 3 and 4 million homeowners will benefit from the Homeowner Stability Initiative component of the plan.

The third component of The Homeowner Affordability and Stability Plan is supporting low mortgage rates by strengthening Fannie Mae and Freddie Mac.  The Treasury Dept. plans to increase their Preferred Stock Purchase Agreements with both Fannie Mae and Freddie Mac from its current $100 billion in both entities to $200 billion in each. The Treasury Dept. also will continue to purchase Fannie Mae and Freddie Mac mortgage-back securities in order to help promote stability and liquidity in the marketplace.  Additionally, the Treasury Dept. will increase Fannie Mae and Freddie Mac’s portfolios by $50 billion, for a total of $900 billion. The Obama Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving home buyers, such as CalHFA. Funding for this will not come from TARP money but from the Housing and Economic Recovery Act.

It was close but, the Los Angeles Unified school board approved the construction of a new, 650-seat elementary school in Playa Vista.  Local residents, some with their kids in tow, and people from neighboring communities attended the City Hall meeting to speak and hear the final vote.  The children of the school will have access to the adjacent seven acre sport's park and approved Discovery Center whose emphasis will be on the ecology and history of the area including Native Americans, Howard Hughs, and plant and animal life of the Ballona Wetlands.  A block away is the recently built Playa Vista Library.  The new school will also have a specialized math/science curriculum and Loyola Marymount University will  offer teacher training for their education students.   As the first LAUSD project ever given accreditation from the U.S. Green Building Council, it is on target for an LEED Gold certification.  Construction will begin late in 2009 and students are expected to be admitted September of 2012.

While the economic package will take time to have an impact, and unemployment is likely to keep rising for months, labor decline will start returning the U.S. toward growth by the end of the year, economists said.

“Economic activity begins to tick up in third quarter of 2009, but the biggest effect of the stimulus bill is in 2010,” said Yale University economist Ray Fair, who has modeled on his Web site the effects of the legislation Congress is negotiating this week.

Fair and other economists say the first evidence that the plan is working should be visible in consumer spending and retail sales, which they expect will stop declining around mid-year. The next sign may come in business investment, as companies grow more confident about a pick-up in sales. The final signal of success would be a turnaround in a labor market that has lost 3.6 million jobs since the recession started in December 2007.

The National Association of Realtors (NAR) reported that its pending home sales index, a forward-looking indicator based on contracts signed, rose 6.3% to 87.7 in December 2008. NAR chief economist Lawrence Yun said the index shows a modest rebound. “The monthly gain in pending home sales, spurred by buyers responding to lower home prices and mortgage interest rates, more than offset an index decline in the previous month,” he said.

The Senate voted Wednesday night to give a tax break of up to $15,000 to homebuyers in hopes of revitalizing the housing industry, a victory for Republicans eager to leave their mark on a mammoth economic stimulus bill at the heart of President Barack Obama's recovery plan.

Sen. Johnny Isakson, R-Ga., who advanced the homebuyers tax break, said it was intended to help revive the housing industry, which has virtually collapsed in the wake of a credit crisis that began last fall.

The proposal would allow a tax credit of 10 percent of the value of new or existing residences, up to a $15,000 limit. Current law provides for a $7,500 tax break but only for first-time homebuyers.

January 26, the National Association of Realtors said existing home sales rose 6.5% in December to a seasonally adjusted annual rate of 4.74 million units. Economists had expected an annualized rate of 4.4 million units and suggested that bargain prices are bringing buyers back into the market.

The median existing home price in December 2008 was down 15.3% to $175,400 from December 2007. It was the biggest year-over-year drop since recordkeeping began in 1968.