During last week’s days to celebrate gratitude, housing and many new home builders got a little gift from powers that be in Washington, D.C.
A not-unexpected lift came from the Federal Housing Finance Agency in the form of a higher lid on conforming loan limits that its wards, Fannie Mae and Freddie Mac, can buy from bank mortgage lenders starting in 2017.
The baseline conforming loan moved up from $417,000 to $424,100, a 1.7% increase that triggered as a result of an FHFA house price index increase of the same amount relative to the index in the third quarter of 2007, a pre-downturn high-water mark.
In higher-cost areas, where 115% of local home values exceed the baseline loan limit, the new conforming loan cap is $636,150 for a single-family unit, up from $625,500.
In California counties like Los Angeles, Marin, Napa, and Orange counties, the new loan limit may come as a bit of a salve for home builders, who–due to land use costs, fees, and permitting delays–couldn’t pencil building profitably at lower price points that would fit conforming loan limits.
Now, in some parts of those counties, a builder may be able to build, for example, an entry-level premium community, make money on it, and sell to a buyer who can qualify for a mortgage that Fannie or Freddie can acquire as a conforming loan.
Of course, that still doesn’t account for solving intra-county disparities where much of the new construction is in higher-cost sections of a county that does not meet the FHFA baseline of 115% of county home values over $424,100. So, the lid is not entirely off, and the limits will still work as a constraint on what builders can build profitably and what buyers can finance with conforming loans.
Still, in a sense, the triggered increase in FHFA conforming loan limits signals that housing, in important respects, has come full-circle from the depths of the downturn, progress to be grateful for.
Of course in many geographies, housing still has a long way to go before it comes back to normal. To some extent, that distance may be measured by how difficult it is for a 34-to-36 year-old couple to break free of renting and take part in the American Dream of homeownership.
