When the Federal Housing Finance Agency lowers the cap on federally backed mortgages, what will the impact be on our local real estate market in 2014?
In January of 2014, the cFederal Housing Finance Agency will reduce the conforming loan limit (which is currently have $625,500) by one hundred thousand dollars or more. The FHFA has not announced exactly how much the cap will be reduced, but if the reduction they made in 2011 is any indicator, the new mortgage cap will probably be $550,000 or lower. In 2011, the conforming loan amount went from $729,750 to its current $625,500, and many home buyers were caught right in the middle.
The communities most affected by these changes are communities like our own – many homes in the South Bay fall in the $800,000 to $900,000 range. Homeowners are currently able to take advantage of conforming loan limits and looser guidelines, but when this change happens and the cap drops lower, those same buyers will be forced into a jumbo product that has tighter guidelines and higher interest rates.
EFFECTS OF THE CONFORMING LOAN LIMIT REDUCTION
- Buyers over the $1,000,000 will most likely not be affected.
- Buyers in the $700,000 to $900,000 price range will see the largest impact.
- Homeowners looking to purchase between $700,000 and $900,000 with 10% down may no longer have that option. In turn, I would recommend any clients in this situation step up their sense of urgency or even offer more than they normally would since the 10% down may not be available for them at a later date.
- Even if a buyer can reach the 20% downpayment mark now, they may end up being required to put 30% down later in order to get a conforming loan starting in 2014. Alternatively, they could still qualify but for a Jumbo home loan at a higher rate of interest. In essence, a home owner who buys now for $800,000 (using a conforming loan) may end up buying at $750,000 (using a jumbo) in 2014 but have the same payment.
- Sellers in the $700,000 to $900,000 may see fewer offers on their homes since not as many buyers will be able to qualify for a conforming loan.
