The Federal Housing Finance Authority (FHFA) raised the Fannie Mae and Freddie Mac (collectively conventional loans) loan limit to $484,350 on Tuesday, November 27th.
For our brave soldiers and sailors – retired or active duty – who qualify for VA loans, the Department of Veteran’s Affairs follows the conventional loans’ lead.
Borrowers need to continue to make sure they stay within their financial comfort zone. Don’t over-buy, keep focus on your budget and your comfort. The price jumps in real estate and the accompanying jump in interest rates will cause many to evaluate when to buy, what to buy and where to buy. Many will decide to stay put and renovate their current home. Perhaps interest rates improve in the new year. Would that be good for us? Maybe for affordability, but the meaning for dropping rates is surely negative for the overall economy.
FHA is a bit trickier than VA, with individual loan limits which have a floor and for some counties equal the conventional limit and in other areas are well below.
Within the conventional world, there are high limit areas as well, but for the most part, we don’t deal with them in Central Virginia. The closest exception to the rule is Louisa County which has a 1 unit high limit of $535,900. Odd, but not in context: Louisa is part of the Richmond Metropolitan Statistical Area (MSA) and thus is dragged along with the counties lumped in with Richmond. As there’s a significant amount of new homes sold in Louisa, it bears watching.
FHA announced their new county limits on Friday, December 14th. The Charlottesville MSA did not move up, remaining at $437,000.
The disparity in our area is evident when you travel into the Valley, where Staunton, Waynesboro and Harrisonburg only climbed from the previous floor of $294,515 to the new floor nationwide of $314,827. The almost 7% jump mirrored Fannie and Freddie. This is very good news for the Valley’s financing options.
On the surface, this increase is a good thing, right? Last year, the limit was $453,100, so this nearly a 7% increase, meaning more people can afford homes. In reality, this jump of over $30,000 feels like housing prices have climbed much faster than inflation. And, in fact, they have. Inflation numbers vary, but 1.8%-2.5% is the rough estimate through 3rd quarter of this year. Wage inflation is over 3% year to date so that’s some solace, but doesn’t keep up with rise in housing costs. Now, couple that with interest rate climbs of roughly 1% this year and housing affordability gets crimped.
Historically, the conforming limit follows house price inflation. In 2008 the limit was $417,000 and remained there until 2017! Should it have stayed at $417,000? No. But lowering the limit would have sent a tough message to the real estate economy that houses were losing value. Emperor, you have no clothes. Then, in 2017 the FHFA raised the limit to $424,100, a modest 2% increase. In 2018, the limit was raised again to $453,100 or 7%. This most recent change increased another 7%.