The Obama administration apportioned a large chunk of the $787 billion stimulus package to help the ailing mortgage industry. The housing plan involves extending $75 billion to about nine million Americans who are threatened to lose their homes via foreclosure. The US mortgage market is estimated to be $10,000 billion.

Barely a month from approving the stimulus package, the plan seems to have a positive effect already. On March 17, the Commerce Department announced that the construction of new homes and apartments last month February has risen sharply by 22.2 percent compared to the month of January. This increase has been observed throughout the country, except in the western states which was heavily affected by the housing slump.

One factor that attributed to this increase is the dirt cheap house prices. Since the start of the mortgage crisis, million dollar houses are now just a shadow of their past values. First American CoreLogic reported that “about 8.31 million properties had negative equity at the end of 2008″. This means that a lot of homeowners owe more on their mortgages than their homes are worth. The cheap prices have prompted a lot of investors awash with cash to snap houses at bargain prices in bulk. In fact, housing sales in some parts of the country had also jumped to surprising levels. For example in Cape Coral, Florida house sales has also gone up by a whooping 103 percent.

Another factor to consider is the decreasing mortgage rate. According to a survey conducted by Freddie Mac, the “30-year fixed-rate mortgage averaged 5.16 percent for the week ending February 12, 2009″. In mortgage terms, this is a substantial decrease to last year’s 5.72 percent. This low rate is “offering many homeowners an incentive to refinance. This would translate into a monthly payment savings of around $188 on a $200,000 mortgage”, according to the Vice President of Freddie Mac.

Rate source: Mortgage Rates

The low mortgage rate also encourages other people to buy new homes. As evidenced by the increase in mortgage applications and mortgage refinance applications. There’s data supporting the observation that the sudden spike is not just a flash in the pan. The economic crisis has changed the savings habits of the general public. The U.S. savings rate has been going up and is now 3.6 percent, up from 2.8 percent in November last year. This translates to enough spending power that could sustain the growth in the housing sector. The confidence in the economy is also high considering the fact that the stock market has been on the up hill run for the past two weeks. The Dow Jones industrial index is now up to 7,278 points as of March 20.

Meanwhile record high unemployment continues. Unemployment rate stands at 8.1 percent for the month of February and is expected to reach 10 percent by year end. Just recently Caterpillar Inc. announced to lay off more than 2,400 jobs in the US, while Nokia will lay off another 1,700 staff in its worldwide operation. The increasing unemployment rate may dampen the gains made in the housing industry as more unemployed means, less people can afford to purchase homes or even pay regularly their mortgage commitments. There is strong correlation in the housing demand and unemployment rate. In the western states where the housing problem is worst, the unemployment rate is also high. It seems tacking the crisis will take more than just one strategy. This means the government will need to focus on generating employment and not just focus on propping up the housing industry.