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Another day, another demand-side stimulus for the housing market.  Huzzah. 

In the sprawling 407-page stimulus bill, nestled in on page 111, Congress authorized a reinstatement of 2008's temporary conforming loan limits.  Effective immediately, home loans in high-cost areas can be insured by Fannie Mae or Freddie Mac up to $729,750.

"High-cost" means exactly what it sounds like.  A high-cost area is one in which homes are relatively expensive versus the rest of the country.  Cities like Arlington, Aspen and Maui come to mind.  Los Angeles and New York, too.

For homeowners in these areas, the standard conforming loan limit of $417,000 doesn't apply.

The definition of "high-cost" doesn't end there, though.  Different from the 2008 implementation in which sale prices across a county were used to identify high cost areas, the 2009 edition gives discretion for "sub-areas".  This is a hugely important piece of the bill -- especially for people in Chicago.

See, the Chicago Metropolitan Statistical Area includes the triangle of Chicago-Naperville-Joliet.  For all of the high-cost homes in Lincoln Park and Lakeview that would pull up the median sales prices of the region, there are low cost homes on the south and west parts of the city to pull it down, rendering all Chicagoland homeowners ineligible for the jumbo-conforming loan limits.

The same goes for Lake County, Illinois.  Because expensive North Shore homes are outnumbered out by inexpensive homes in the rest of the area, towns like Lake Forest and Northbrook were left out from the 2008 plan.

But now, because the government can legally separate Chicago into sub-areas that defy regional trends, thousands of homeowners can be suddenly eligible for low-rate conforming home loans.  This is a big deal because as mortgage rates have fallen, home buyers in Highland Park, Kenilworth, and Gold Coast have been forced into the more expensive world of Jumbo Mortgages. 

In Cincinnati, the same could be said of Indian Hill.

Now that sub-areas are eligible for high-cost treatment, we can expect demand for new homes to rise because -- in relative terms, at least -- home financing will be Sofa King cheap.

The loan limit reinstatement to $729,750 is another positive development for the housing market.  So much of its ills have been tied to falling home prices and this is just one more way for the government to spur demand.  Combine this action with the $8,000 first-time home buyer credit, Fannie Mae's re-uppance to 10 properties per person, and the ongoing foreclosure moratorium and you can practically predict how the Supply and Demand curve is going to shift.

The government hasn't yet defined which sub-areas are high-cost and which are not. To get notice of the list when it's published, and I'll forward it to you when I get it.  You can also follow me on Twitter because I'll be sure to post a link from there, too.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.