Real Estate Talk: Higher Conforming Loan Limit Praised


By M. Dean Vincent

Realtors applauded the Federal Housing Finance Agency’s announcement late last month to increase the 2017 conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac to $424,100 on one-unit properties and a cap of $636,150 in high-cost areas.

The previous loan limits were $417,000 and $625,500, respectively.

The Housing and Economic Recovery Act of 2008 (HERA) established the baseline loan limit of $417,000 and requires this limit to be adjusted each year to reflect the changes in the national average home price.  However, after a period of declining home prices, HERA also made clear that the baseline loan limit could not rise again until the average U.S. home price returned to its pre-decline level. Until this year, the average U.S. home price remained below the level achieved in the third quarter of 2007 and thus the baseline loan limit had not been increased.

“Raising the existing Fannie Mae and Freddie Mac conforming loan limits … will provide stability and certainty to the housing market and give tens of thousands of California homebuyers a chance at homeownership,” said Geoff McIntosh, the 2017 president of the California Association of Realtors. “The FHFA recognizes that home prices have recovered, not just in California but also across the nation. Many higher-priced areas of the state will benefit greatly from the higher limit.”

The conforming loan limit determines the maximum size of a mortgage that government-sponsored enterprises Fannie Mae and Freddie Mac can buy or “guarantee.”

Non-conforming, or “jumbo loans,” typically have tighter underwriting standards and carry higher mortgage interest rates than conforming loans, increasing monthly payments and hampering the ability of families in California to purchase homes by making them less affordable.

San Jose’s $1 Million Price Leads Nation

Seven of the ten most expensive housing markets in the United States are in the West with San Jose’s $1 million median home price leading the way.

Persistent shortages of homes for sale throughout the nation led to slightly faster home price appreciation during the third quarter, according to a report released recently by the National Association of Realtors.

Price gains were recorded in 83 percent of metro areas with 25 cities in the third quarter seeing double-digit increases. Lawrence Yun, NAR chief economist, said prospective buyers faced a very challenging market during the third quarter.

“Mortgage rates around historical lows and solid local job creation created a winning formula for sustained home-buying demand all summer long,” he said. “Unfortunately … deficient supply levels limited their options and drove prices higher — especially in markets in the West and South.

“That’s why it’s absolutely imperative that homebuilders ramp up the production of more single-family homes to meet demand and slow price growth.”

The five most expensive housing markets in the third quarter were the San Jose metro area, where the median existing single-family price was $1,000,000; San Francisco, $835,400; urban Honolulu, $745,300; Anaheim-Santa Ana, $740,100; and San Diego, $589,300.

Los Angeles had a median home price of $536,700, up 5.1 percent from a year ago.

The five lowest-cost metro areas in the third quarter were Youngstown-Warren-Boardman, Ohio, $90,300; Cumberland, Maryland, $94,400; Decatur, Illinois, $99,400; Elmira, New York, $109,400; and Rockford, Illinois, $111,900.

M. Dean Vincent is President of the Santa Clarita Valley Division of the 9,500-member Southland Regional Association of Realtors. David Walker, of Walker Associates, co-authors articles for SRAR. The column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.

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