Shrinking Dollars for High End of Homes

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House values continue to fall, so who cares if top loan limits drop accordingly?

Well, agents and homebuilders care. Right now, about $729,000 is the biggest mortgage that will ‘conform’ to the cookie-cutter standards for the secondary market (that’s be the Federal Housing Agency as well as the notorious Fannie Mae and Freddie Mac). The limit is scheduled to drop to $625,500 on October 1. It’s academic for most of the country, as the average value of houses is bumping along around $200,000 or so.

But agents and The National Association of Home Builders are upset on behalf  of homeowners in California, New York, Boston and other high-cost markets, because home values inevitably will drop along with the mortgage ceiling. As part of the lowered ceiling, FHA limits will erode a bit for about 20% of the country’s counties, which happen to include 59% of the owner-occupied houses. The NAHB figures that loan limits will set back about 14%, or, an average of $58,060 in those counties.

There’s no question that the mortgage market is in a shambles. Fallout for homeowners is ruthless and relentless. As loan limits start to realign with market realities, the silver lining could be that property valuations settle down, too. These days, it’s the process of getting a loan that’s likely to disintegrate, not the amount of the loan itself. Resetting the limits might shore up lenders’ perspectives long enough for them to approve loans instead of back away.

Image courtesy of Morguefile contributor alvimann.