Market Conditions: The Higher Federally Guaranteed Mortgage Limits Are Expiring Oct 1
We have chattered previously about the expiration of the higher limits on FHA, Fannie and Freddie backed mortgages that is effective as of October 1.
The limits were raised in expensive locations, mainly on the East and West coasts, in the original stimulus bill.
In the high cost areas, the cap will fall from $729,750 to $625,500.
Chicago was NOT a high cost area. Its Fannie and Freddie cap remains at $417,000.
However, the maximum for an FHA-backed loan in Chicago WILL fall to $335,350. Many downtown high rises in the past few years have touted that they were FHA approved.
There have been several bills put forth, by both Republican and Democratic representatives, to extend the cap another 2 years. So far, nothing has passed so it is set to expire on October 1.
This is a statement released yesterday from Congresswoman Lois Capps of California’s 23rd District:
“Strengthening our local housing market is critical to creating jobs and stimulating economic growth. Since 2008, these elevated loan limits have helped make homeownership a reality for thousands of local residents, simultaneously strengthening the housing market and creating jobs. Allowing these limits to expire will be a huge blow to our local economy, forcing over 30,000 homebuyers in California to pay more for their mortgages. This is simply the wrong move at a time when the housing market and economy continue to struggle. I will not stop fighting for this critical extension and other proven solutions to strengthen our local housing market and economy.”
Will the end of the higher FHA cap have any impact on the Chicago market?
I don’t think it will have much effect. FHA is not a huge part of the Greenzone condo market. The only reason buildings were rushing to get FHA approved was because conventional financing with 5% down dried up due to mortgage insurance restrictions on condominiums. At one point about two years ago, you could not buy a condo with less than 10% down unless the building was FHA approved. Most MI companies now will allow 5% down on condos again, so the need for FHA isn’t as great.
The borrower quality on purchases is quite high from what I am seeing these days. Most don’t need FHA.
The FHA limits for Cook County is $410,000 for a single family home. That wasn’t disclosed in the excerpt above.
It actually will be $365k in Cook County for FHA through the end of the year now with the reduction.
You can look up loan limits here:
https://entp.hud.gov/idapp/html/hicost1.cfm
NO way, this will affect the chicago market in a substantial way. The $300-$400k market is pretty hot, especially in the middle upper class areas, including the suburbs. Buyers get in with little money down and buy their 2/2 or their small home in an area with good schools meanwhile the really nice $600k home next door languishes. For example, the 6186 N. Lenox property featured on cribchatter was a $385,000 purchase with a $365,000 mortgage. I see this all the time in the $300-$400k range. NO second mortgage, only a first mortgage, and 90-95% financing, between $300 and $400. Those sales WILL dry up. Just watch. That’s a significant part of the market in some areas of the city and suburubs where the entry point is $300k.
The $300-$400k homes must fall in price to reflect this new reality, and they will, believe me, after this winter’s dearth of sales in that range, prices will drop to reflect this new reality.
“The $300-$400k market is pretty hot, especially in the middle upper class areas”
Typo? I think $300-$400k buys most (younger) folks in the upper middle class/middle upper class a condo, not a starter family home.
Of course it will have an impact on prices, although not in my building as its been FHA, non-approved for a while now thanks to no more spot approval and a stricter rental rate. Thank god I didn’t spend a ton on my condo in the first place!
HD, FHA is not the first choice financing for most buyers.
Conventional in many cases is cheaper and you can get it with 5% down. Unless someone really can’t come up with 5% down and needs the 3.5%, there really is no benefit to FHA unless you have less than perfect credit.
I’m sure in some markets, maybe far out ‘burbs FHA may be more popular, but it isn’t a go to product here in the city. Maybe on the far southside, west sides, etc…
“Typo? I think $300-$400k buys most (younger) folks in the upper middle class/middle upper class a condo, not a starter family home.”
Depends on the suburb; in the sliver of area called the green zone, it’s a condo; but around the rest of the city, $300k buys a somewhat dumpy starter home but in the less desirable areas, $300k can buy you a nice place.
“Typo? ”
Nah, he’s talking about this sort of place:
http://www.redfin.com/IL/Deerfield/1247-Oxford-Rd-60015/home/14172133
I know you have a fear of both deer *and* fields, so it wouldn’t be a good choice for you, but for a family with a ~$150k HHI (solidly “upper middle”) and jobs in the north ‘burbs (lots), that’s a good “starter” option.
And, if you’re inclinded to bitch about the quality of Deerfield schools, you’ll end up sending Xavier and Amanda to private school anyway.
Russ:
Percentage of home purchase loans that were FHA
Metro area* Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Peak month since ’07**
Chicago 2.4% 5.9% 34.0% 40.9% 35.4% 43.3%
ummmm……….maybe not in the ‘green zone’ that little sliver of area along the lake on the northside, and maybe not the buyers you work with, but, FHA somehow manages to still be 43% of the market…..
just another sign of deflation. Does anyone really think the Fed can print to keep up? I’m worried that basically anyone with any debt, companies too, will get wiped out, as when asset values deflate, the debt remains the same. OT: but I’ve been reading some interesting stuff recently that says a “fix” (i.e. cut spending, raise taxes, etc.) isn’t going to work now, so as a nation we’ll have to decide on massive printing/inflation or deflation and defaults.
“Percentage of home purchase loans that were FHA
Metro area* Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Peak month since ‘07**
Chicago 2.4% 5.9% 34.0% 40.9% 35.4% 43.3%”
With the change in volume, it’s that close to a flat overall number of FHA loans in each period?
According to ECRI the US officially entered a recession last week. This certainly won’t help the housing market. CME housing futures still point to price declines through 2013-14. Don’t see much reason to expect otherwise.
http://businesscycle.com/
hah, ECRI is like a broken clock, they have been calling for another recession about every 3 months since december 2009, they are about as accurate as any other economist so take their news with a grain of salt
http://businesscycle.com/aboutecri/trackrecord
Chicago PMI came out today relatively strong. In addition, initial jobless claims were significantly lower than expected.
Sonies- you’re absolutely wrong. ECRI has the best track record out there. They actually called that the US WOULD NOT enter a new recession last year. Their prior call was the late summer of 2008, you might remember that year? Perhaps you’re confused with the National Bureau of Economic Research?
“In addition, initial jobless claims were significantly lower than expected.”
To be revised upwards, I’m sure….
“Strengthening our local housing market is critical to creating jobs and stimulating economic growth. Since 2008, these elevated loan limits have helped make homeownership a reality for thousands of local residents, simultaneously strengthening the housing market and creating jobs. Allowing these limits to expire will be a huge blow to our local economy, forcing over 30,000 homebuyers in California to pay more for their mortgages. This is simply the wrong move at a time when the housing market and economy continue to struggle. I will not stop fighting for this critical extension and other proven solutions to strengthen our local housing market and economy.”
Let me translate this statement for you.
Ability to maintain status quo is crucial to me keeping my job as a member of the United States Congress. Since 2008, these elevated loan limits have helped to prop up prices on thousands of bubble properties, trapped a few knife-catchers who would have been better off renting, allowed the banks to pretend that their balance sheets have not been impaired at all, and, last but not least, put a few extra dollars in the pockets of those hard-working men and women we call REALTORS® (Don’t forget who writes all those checks for my campaign). Allowing these limits to expire would actually be very helpful in getting closer to the equilibrium in the housing market no longer distorted by arbitrary government intervention. But who are we kidding, those 30,000 dimwits who bought their house because they could (barely) afford a monthly payment are not going to be too happy since summarily the real value of their assets is probably one half of what they owe to the banks. And as long as those campaign contributions keep rolling in, I will not stop fighting for this critical extension and other proven solutions that use the funds of so many to fill the pockets of so few.
“With the change in volume, it’s that close to a flat overall number of FHA loans in each period?”
Now you are really reaching to give hd a hard time.
well said zillion, and yes phil I must have been thinking of the NBER who is probably just another propaganda arm of the us government like the AP
“Now you are really reaching to give hd a hard time.”
Sure.
But what are the Feb sales counts for 07-11? I looked at the old Market Conditions posts, but couldn’t see that you’d posted them.
Also, note that HD’s data shows FHA % off by over 18% from peak.
Anon it’s off 18% from peak because of reduced volume 😉
“Anon it’s off 18% from peak because of reduced volume”
Wha???? The *percentage* is off because the total count is down? How does that makes sense?
If you can explain that, I’ll trade you a Jim Baker benjamin for 5 Geithner 20s.
Hence the smiley face, anon. I knew that’d get you all riled up.
“Hence the smiley face”
I consider smiley faces to be typos, and ignore them.
Are the FHA limits the same for sfh and muti-family buildings?
“Are the FHA limits the same for sfh and muti-family buildings?”
No.
Thanks anon (tfo) do you know what the multi-family limit is changing to?
Single Family: $365k
Two Unit: $468k
Three Unit: $565k
Four Unit: $703k