On Loan Limit Drop, Middle Faces Hard Hit

Time is running short for Congress to prevent FHA and conforming loan limits from reverting back to 2008 levels. The current limits expire Sept. 30 and will drop from 125 percent of the area media home price (and a top limit of $729,750) to 115 percent of area home price and a top limit of $625,500. If Congress fails to extend the limits and they drop, the real estate industry (which is united in opposing a drop) will certainly look for another opportunity later in the year to get them back up.

Regardless of what Congress decides to do, it’s clear there’s a lot of information on the issue in the media that’s simply not helpful. It’s not uncommon for current loan limits to be described as helping higher-cost housing, but as NAR has been trying to make clear for almost a year, a drop in the limits will be hard on middle-class buyers and sellers, because maximum conforming loan limits will drop in markets throughout the country. The issue is so often expressed as a Boston, New York, San Francisco issue, but in fact buyers and sellers will feel the impact at all price points in almost 670 markets in more than 40 states.

Allan (“Dutch”) Dechert of the New Jersey Association of REALTORS® captured this squarely when he testified earlier this week (see 44-second video above) before a panel in Congress that was looking at ways to improve the disposition of REO properties. Dechert, the president of NJAR, brought the impact home to the panel’s chairman, Sen. Robert Menendez (D-N.J.), when he explained how the lower limits will hit the middle of the market as much as the higher-end market. In New Jersey’s Cumberland County, Dechert said, the drop would be more than $100,000, and Cumberland is a middle-income market.

How will dropping loan limits now help stabilize housing markets? It won’t, and that’s the message that everyone in the housing industry, including the home builders and the REALTORS®, are trying to get across. But time is running out.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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  1. Trickle Up Effect of Lower loan limits will reduce buyer pools for lowerer priced home owners making it more difficult for them to sell and buy up. Eventually all market price points (including multi millon dollar homes) will be effected by lower loan limits resulting in longer market times and lower values. The combination the lower loan limits, short sales and REO properties will prolong any type of sustainable economic recovery.

  2. Tim Calnen

    Robert Freedman again convincingly communicates “What We’re Fighting For” just like he did in the August Realtor Magazine story ! Also, the video clip showing
    the remarks between Dutch Dechert and Senator Menendez takes the “middle class” threats to an even more credible level as far as the wrenching-back of the
    FHA/GSE loan levels. Good work.

    … Tim Calnen
    Vp, Government Affairs
    Connecticut Asociation of Realtors

  3. It will cut my business in half. My average sale price in Tracy, CA is $256,000 in Mountain House, CA it is $286,000 that’s the median price. 95%of buyers in the past 5 years have been FHA. I currently have 6 short sales in negotiations that will die and another buyer will need to be found IF the buyer can’t qualify for FHA.

    Numerous buyers are starting to qualify for FHA financing after a short sale, 3 years, it’s 5 years for conventional.

    Devastating to those of us in San Joaquin county that do no reside in Stockton, ie Tracy, Mountain House, Lodi, Ripon.

  4. Should be interesting to see how this will effect the real estate industry with the challenges that we are all already facing, especially in higher priced markets.

  5. Just too bad. 🙁 and not fair that Mountain House is stuck in the middle. Most of my sales are in Mountain House and the home prices here are a bit higher than the surounding areas in San Joaquin County. Homes here in Mountain House go well over the $304 limit. I too have a couple of transactions that may die due to this drop. Time for USDA and 5% conventional!!

  6. Kym

    Today we went to look at home that just hit the market in the neighborhood we’ve been wanting to buy a home in. We’ve been renting in this community for over 3 years now. We were so excited to see this home for sale. It’s one that we always pointed out as a favorite. Perfect location, perfect size, amazing views, etc. etc.

    After seeing the home, we were ready to put a full price offer down…During our discussion with our realtor we were informed about the new loan limits. In just a quick flash we saw our dreams of owning a home again disappear…We were fully prepared to put 3 1/2 % down on an FHA loan for a home priced at $720,000. With the new loan limits, we would have to use all of our savings to get into the house. With the job market and economy being so volatile there is just now way we are willing to risk it…

    This is a real shame….