Why Loan Limits Didn't Increase More for 2016
Recently I blogged about the coming conventional loan limit increases planned for 2016. There were plenty of counties in a handful of states that saw improvements in allowable loan amounts, but a lot of people seemed to be wondering why their areas didn't see the same increases, or more.
Particularly here in California, Orange County, the LA market, and the Bay area have seen a ton of home appreciation this year, so it would reason these areas should have seen loan limit increases. Alas, they did not. While some hot markets like Denver and some areas of New England saw a jump, a lot of similarly hot markets will remain the same in 2016.
Currently, FHFA (Federal Housing Finance Agency) is limited in how much loan limits can increase by the Home Price Index. As part of the Housing & Economic Recovery Act from 2008 (HERA), home prices nationwide must exceed their 2007 Q3 level before loan limits are allowed to be raised again. While there is still some room in local pockets of the country to see increases, many of the hottest markets have their loan limits set already at the national maximum amount of $625,500 for a single family home.
There is some argument that home prices are already back to their 2007 peak, and in some areas, they certainly are, but the most recent data suggests that nationwide, home values are 3.7% short of 2007's Q3 mark. With forecasts for home appreciation for 2016 at 4%+, the good news is in November of next year, if trends continue in the right direction, we could see some much needed relief in the form of loan limit increases in many areas already maxed out at the $625,500 mark.
Home prices in many markets have certainly outpaced loan limit increases, so in many markets even a modest increase in allowable loan limits would be welcome relief to help more people finance their homes, especially younger people with high earnings and not enough assets to cover a 6-figure down payment, which we're currently seeing required in much of the Bay Area, LA, and similar markets.
While we're capped for 2016, there's hope that in 2017, we'll see a broader loan limit increase across the board.
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