In 2014 Riverside County, maximum FHA loan limit was reduced to $355,350 for a single family home. This is a reduction of $144, 650 or a 29% reduction in the maximum loan limit. It is also the 10th highest reduction in FHA loan limits statewide and the highest in Southern California. FHA said the new limits are a sign of continuing improvements and recovery in the housing market. How does reducing the loan limit help the continuing improvement and recovery of the housing market? It doesn’t. What it has done at best is stall the market of homes that would have been sold by now and at worst was the catalyst to the price reductions and swelling inventory that we are witnessing now.
Due to HUDs actions, the largest pool of buyers (First Time Home Buyers) in this market has been impacted. First time home buyers can’t catch a break. When the limit was higher property values were lower and rates were lower, investors kept them out of the market. Now the FHA loan limit is lower, FHA mortgage insurance premium is higher, interest rates are higher, property values are higher, investors are still creating havoc and according to recent data from the National Association of Realtors, first-time homebuyers account for just 33 percent of all home purchases. That's the lowest level in 27 years. Our representatives at the state and federal level are silent on this. Why? Where are they on this issue and what are they doing? The limit needs to increase and the FHA Mortgage Insurance Premium needs to be reduced to at least 50%.
In 2008 the max FHA loan limit for Riverside County was $500,000 for a single family home. Today there are more restrictions, higher down payments requirements for lower credit scores and higher credit score requirements for the lowest down payment and very high mortgage insurance premiums. All of these changes along with the new max FHA loan limits have caused a drop in home prices and there is conceivably no end to the decrease in property values because of uncertainty of future buyer demand. In addition, millennial’s are burdened with school debt and are viewed as not interested in mortgage debt, home maintenance and the immobility of homeownership as a lifestyle. What could this mean to home ownership in the future?
Shiller of the Case Shiller Index said, “Our millennial’s spend more time on Facebook than standing over the backyard fence talking to the neighbors. Maybe neighborhoods are not as important or maybe there’s an urbanization trend going on”. The millennial’s are an interesting bunch who are embracing the technology revolution that is taking place in our society and we really do not know what it all means yet. What do know is that technology is affecting how we live and interact with each other and it is changing our value system. If demand continues to drop and people cannot qualify for larger loans a market correction is inevitable and it is not a matter of if but when. This is good news for first time home buyers because it represents some relief from all that has happened and is still happening to them. For sellers it is your worst nightmare. If you are a seller and you need to sell then seriously consider every reasonable offer that your agent presents to you, if you get an offer at all right now. Have your agent provide you a list of all the price reductions in your neighborhood and the days on market of all the other properties on the market. Then ask yourself if you want to be behind the curve and not sell your home or get in front of curve and sell because that is where the buyers are.
Inventory is plentiful and buyers are front of a declining curve waiting for the price to come to them. They are not coming to your price Mr. Seller. Buyers are the market makers and will be for a while. This harsh reality means that all sellers must be clear on their motivation to sell. They must have a serious financial need or reason to sell. If not, then taking your house off the market, if you can afford to wait for the next boom in about 7 to 10 years, actually will help to stabilize home values.
The good news for Riverside homebuyers is that there are mortgage assistance programs to help purchase a home in spite of the reduction in the FHA max loan limits and the overall market; which will become more favorable to buyers as we enter into a new year. If you are a ready to buy now you may be eligible for help with your down payment.
More good news for homebuyers comes in the form of new 3% down payment loans from Fannie Mae and Freddie Mac. These new 3% down loans are targeted at buyers that have good credit but are short on cash. Executives at both Fannie Mae and Freddie Mac say the loans contain all the proper safeguards after coming under fire from critics that say this type of lending is precisely the type of risky lending that led to the mortgage meltdown and financial crisis.
According to a survey released in August by the Federal Reserve, 45% of renters postponed buying a home because they did not have enough money for a down payment.
2015 is looking brighter. According to HUD there will be no more cuts to the max loan limits of 2014 and in some areas max loan amounts have been restored to previous levels so the housing outlook is a bit more positive with a loosening of primary mortgage requirements and down paymentassistance programs. Go buy folks before things change.
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