So what are conforming loans and their limits?
Conforming loans are the most common mortgage products available to all qualifying borrowers. Estimating about half of the existing US mortgages are currently transacted and backed by Fannie Mae and Freddie Mac, the two giant lending enterprises in our country. Don’t mistake them as lenders because they are not. As a matter of fact, they (sort of) act like the middle guys who purchase loans from thousands of lenders out there and sell them back to investors.
The conforming loan limit is the highest loan amount one can borrow (and can be higher if the subject property belongs to a high-living cost area such as San Francisco, New York, Los Angeles, etc.). If the loan amount exceeds this amount, it will no longer be considered as a conforming loan and is typically more expensive due to higher risk associating with it. Historically speaking, the conforming limit has always been increasing but never decreases, even when there’s a housing crisis.
Mortgage giants Responded to High Home Prices
Effective in 2023, the conforming loan limit has been raised to $726,000 by Fannie Mae and Freddie Mac end of November 2022 ($1,089,300 for higher-cost areas). It’s a whooping $79,000 increase from the limit of 2022, $647,000 and $970,800 for high-cost areas. Despite the turmoil we’re experiencing in the housing market right now where both buyer’s and seller’s expectations are a thousand miles apart, home prices remain (somewhat) stable and doesn’t drop as much as many prospective buyers may expect.
Perhaps maybe! The limit increase is definitely a great news for all homebuyers across the nation simply because the bigger loan is now more affordable and buyers in higher cost areas may not need to tap into jumbo mortgages.
On top of the limit increase, William Doerner, an economist from FHFA’s division of resaearch and statistics, stated that home price’s growth rate in the US has decelerated comparing to the past couple years. As a matter of fact, 1/3 of all states and metropolitan statistical areas are now reported annual growth sub 10%. This is definitely the cherry on top as we’re slowly seeing price adjustments in most markets.
Yet, not everyone is happy still.
Not everyone sees this move as a path to happiness. The Housing Policy Council, an association consisting of mortgage lenders, insurance providers, and other service providers relating to mortgage, claimed that the limit increase possibly can make the housing affordability crisis worse.
If you refer back to the P/E ratio here, you’ll notice the household income cannot keep up with the rising of home prices. Therefore, the increase of this loan limit will encourage borrowers to take out bigger loans to purchase more expensive homes (they probably shouldn’t though), which may result in more mortgage delinquencies if they cannot continue paying the monthly payment.
Of course, at the end of the day, all of these statements are purely assumptions. Only time can tell how the future will pan out. But for now, at least we all have different perspectives and prepare ourselves for 2023, whether you are or are not on the market for a property.
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