In November Congress restored the higher Federal Housing Administration (FHA) loan limits, providing an important financing alternative for more households seeking home ownership opportunities. In Santa Clara County this means the maximum size of mortgages FHA can insure was raised back to $729,750.
"Restoring the FHA high-cost loan limits will enable buyers in certain price segments to obtain affordable loans. It's a step in the right direction to help the housing market recover," said Gene Lentz, president of the Silicon Valley Association of REALTORS®.
According to the California Association of REALTORS®, as loan limits were reduced to lower levels on October 1, that month's home sales in the affected price tiers softened. Overall, there were 493,240 sales of existing detached homes in October improving 0.9 percent on a month-to-month basis and up by 8.5 percent over last year. Home sales rose for the fourth consecutive month on a seasonally adjusted annualized basis. The statewide median price, however, showed a larger than expected decline of 3.3 percent from September and a decrease of 8.9 percent from last October to $278,060.
Despite the overall gains in statewide sales, C.A.R. senior research analysts Sara Sutachan and Oscar Wei indicate sales in the price segment directly impacted by the reduction in loan limits ($500,000 to $999,999) were down 16.4 percent on a month-to-month basis and down 12.7 percent on a year-over-year basis. "While it remains to be seen how much of the sales decline in this price tier may be attributed to the rollback of loan limits, the drop was particularly large when compared to sales under $500,000, which only declined 6.1 percent on a month-to-month basis but increased 11.1 percent when compared to the same period a year ago," the analysts state in a recent report.
According to the C.A.R. Annual Housing Survey, Fannie Mae, Freddie Mac, and FHA together account for 95 percent of all new mortgages in California in each of the last three years. The higher cost loan limit provided a much needed source of financing to the mid-priced segment of the market in the state, particularly to trade-up buyers who continue to face challenges to moving up due to loss of equity, lower values, and other factors.
"The reduction in the high cost limits had a negative impact on this already struggling segment of the market, which in turn hinders the supply of entry-level homes for first-time buyers to purchase, compromising the housing recovery," the C.A.R. analysts' report explains.
Buyers seeking home loans above the conforming loan limit must qualify for jumbo loans, which command higher interest rates, require higher down payments. The direct impact of lower loan limits is a higher monthly payment. This would have an adverse effect on housing affordability for California home buyers, where household incomes are not much different from the country as a whole, but home prices are considerably higher, the analysts' report concludes.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
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