Increased Loan Limits: Probably a Good Sign for Sellers
On November 26, 2019, The Federal Housing Finance Agency announced that it will increase the limit for conforming loans; mortgages that are in-line with the standards set by Fannie Mae and Freddie Mac. Thus, beginning in 2020, borrowers will be able to take a loan of up to $510,400 across the nation. In areas like Encino, Tarzana, Sherman Oaks, or Studio City (and any other high cost location), borrowers will be able to take a higher loan depending on how many units the property contains. For single units, the maximum will be $765,600; for two-units, the maximum will be $980,325; for three-units, the maximum will be $1,184,925; and for four-units, the maximum will be $1,472,550.
The law requires home-loan limits to mirror the changes in housing prices across the United States. Home prices have been increasing by roughly 5.38% between the third quarter of 2018 and the third quarter of 2019. The law further allows for a 50% increase in loan limits for high-cost areas. This is the fourth year in a row that loan limits have been increased; which tells us that housing prices have been increasing over the last four years as well (the hard data confirms this). From 2006 to 2016, the loan limits held steady at $417,000; when the limit increased in 2017, the mortgage industry expected the change to increase the number of loans taken (resulting in more home sales).
This increase should be viewed with some concern; however, as it indicates that the affordability crisis that has been impacting the housing market will only get worse. Increasing the loan limit will help offset this, but it could be a superficial fix in the long-run; unless mortgage rates remain low, larger loans could result in more defaults. For now, sellers should view this news optimistically.
At the Chernov Team we understand knowledge is power, and knowledge of how the housing market is likely to behave in the future is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.