housing bubble Archives

The New Conforming Loan Limit

The current 2016 loan limit for single-unit properties or single family homes has remained at $417,000 for the last 10 years until recently. The FHFA has announced that the loan limit for single-family homes is increasing approximately 1.7% on January 1, 2017 from $417,000 to $424,100.

The changes were established because of The Housing and Economic Recovery Act of 2008 [pdf], which previously set the baseline loan limit at $417,000. The law also determined that after a period of housing pricing declines, the loan limit may not rise until prices return to pre-decline levels. It follows that since the FHFA is increasing the limit, it stands to reason that home pricing is back to pre-decline levels!
See also: Low Housing Inventory Driving Values Up – Benchmark (why the latest rise in home pricing is not another bubble)

FHA National Loan Limit is Up, Too

The FHA national loan limit “ceiling” will rise to $636,150, formerly set at $625,500. Additionally, the “floor” will increase to $275,665 from $271,050. The actual limit is variable by state and county. The “floor” is the lowest assigned limit, and the “ceiling” is the highest assigned limit for the nation as a whole.

The national loan limit is recalculated annually by the FHA from a percentage calculation of the national conforming loan limit. The calculated increase is positively correlated with rising home prices in high-cost markets.

Many people may have been watching home values steadily rise over the past year, and notice that it isn’t slowing down.

Another Housing Bubble?

Is this the aftershocks of 2008? Has sub-prime lending made a comeback as the Federal Reserve has hesitated to raise interest rates? Are new homeowners soon to be upside down on their young mortgages? No. Some have speculated it. Don’t believe it.

Purely Supply and Demand

After the bubble crash 8 years go, demand dropped first, then supply followed. In the market’s rebound correction (that we are still in the middle of), demand is driving the housing market once again.

In this case, demand growth is outpacing the housing supply. The result? More people want the housing that is available, and the competition drives up market value.

While this does make it a difficult time to buy, it may also be a terrific time to sell!

What’s A New Buyer To Do?

When prices are going up, and are projected to continue to increase, it is good to remember that interest levels are still low. This is when it makes sense to consider the true cost of waiting.

True Cost of Waiting

Consider this:

If you were to buy a house right now, with a $250,000 mortgage at 3.68%APR interest, your Payment (P&I) would be $1,147.88

If you were to buy the same house Between January and March (estimate) in 2017, your same mortgage would be $263,750 at (estimated) 4.5%APR interest. Your Payment (P&I) would be $1,336.38

By buying now, your net worth would automatically increase by $13,750 (not including the principle payments that you would be making to shrink the balance/increase your equity)

The difference in monthly payment would be $188.50. Can you afford an extra $188/month in exchange for… uh… well… …hesitation?

Over the course of 30 years, you would end up paying $67,860 more as a result. What could you do with an extra $68k?

Lock It In, And Watch It Climb

The general convention, as we have mentioned before, is to buy as early as you can. You may be better off in terms of both equity and housing costs.

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Tag: housing bubble

Conforming Loan Limits Set To Increase For 2017