Update: On Wednesday, February 6th, the Chicago City Council voted 41-6 to increase the real-estate transfer tax from $7.50 per thousand dollars in home value to $10.50 per thousand. The increase takes effect April 1st. A person buying a $300,000 home in the city will pay $3,150 in city transfer taxes, an increase of $900 (from $2,250 at the present rate).
Have you wondered what real-estate agents have been doing with their time during this super-slow market? Well, it seems many of them have been pressed into service as lobbyists. Over the past two weeks, the National Association of Realtors (NAR) has been urging its membership to push Congress and the President to enact sensible rule changes on lending that could help huge numbers of homebuyers better afford their houses. At the same time, the Chicago Association of Realtors (CAR) has been waging a vigorous campaign against the proposed increase in the city real-estate transfer tax that is a key part of the state’s mass-transit funding package. The Illinois Association of Realtors (IAR) has signed on to the coalition CAR pulled together for that fight.
First, let’s look at the national picture. NAR’s efforts revolve around a potential change in the guidelines that define a jumbo mortgage. Jumbo mortgages have a higher interest rate than other loans; the idea is that a higher-income borrower buying a “jumbo” house should share more of the risk with the bank. Changing the lending limits so that fewer mortgages get classified as jumbo will, in effect, lower interest rates for many homebuyers. That’s why NAR has advocated including in the federal economic stimulus package a mandated rule change as part of the effort to pump some blood back into the real-estate market.
The guidelines that now govern Fannie Mae and Freddie Mac, the government-sponsored mortgage finance firms, classify any mortgage over $417,000 as a jumbo loan, subject to an interest rate that can be as much as 1 percentage point above the rate on Fannie Mae and Freddie Mac loans (last week, the difference was about five-eighths of a percentage point). But in a relatively expensive market like Chicago’s, $417,000 doesn’t buy a high-end or “jumbo” home, only a nice one. As several mortgage brokers and real-estate agents have pointed out to me in recent weeks, pushing the lower limit on jumbo loans to $625,000 would get closer to making a realistic distinction between a nice home and a luxury home.
In January, the U.S. House of Representatives, in part due to NAR’s efforts, included a lending-rule change in its version of the stimulus package. (The $625,000 limit for jumbo loans would expire on December 31, 2008, unless another push succeeds in extending the limit or making it permanent.) Now NAR is asking real-estate agents to send letters to their U.S. senators urging the Senate take the same stance.
Meanwhile, here at home, CAR and IAR have been calling on real-estate agents and homeowners to urge the Chicago City Council to reject a $3 per $1,000 increase in the transfer tax the city collects on home sales. Springfield legislators included the provision in a January mass-transit bailout package as a way of covering more of Chicago’s share of the cost of mass transit. CAR and its allies have repeatedly insisted that the new funds would only go to CTA pensions.
“We question why Chicago homebuyers will have to shell out several hundreds—or maybe several thousands—of dollars more for the CTA’s pension system, when many of those homebuyers do not themselves have a guaranteed pension,” IAR president Kay Wirth said at a City Hall press conference last Thursday. (The press conference, organized by CAR, drew leaders of building, real-estate, and business groups.)
Today the City Council’s Finance Committee is expected to vote on the tax; if the committee OKs the tax, it would move on to the entire City Council for approval. According to an article that appeared Monday on the Sun-Times Web site (and that was reprinted in Tuesday’s newspaper), city aldermen expect the measure to pass, reasoning that keeping transit alive in Chicago and the suburbs is a higher priority than saving homebuyers money. Also on Monday, CAR sent out another in a long series of alerts to its members asking them to urge their aldermen to oppose the tax.Edit Module