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What Do Increasing Loan Limits Mean? | WMU 12.3.21

Modern home with blue siding at dusk
Dec 6, 2021 02:30 PM

By: Kyle Bergquist

Puget Sound Real Estate:  What Do Increasing Loan Limits Mean?

The FHFA officially announced their new 2022 conforming loan limits – AKA, the max loan amounts Fannie Mae and Freddie Mac will lend up to.  For King, Pierce, and Snohomish Counties the loan limit is $891,250, and in all other Washington Counties it’s $647,200.  That’s a $115,000 increase for the TriCounty area (+14.81%), and a $98,950 increase for everywhere-else-Washington (+18.05%).  That sounds crazy awesome, but what does that mean to the Puget Sound Housing Market???

  1. Higher Purchase Prices for Lower Down Payment borrowers.  High Conforming loans (loan amounts between $647,200 and $891,250) require a minimum 5% down payment.  For a decent interest rate, most jumbo loans require at least 20% down.  Therefore:
    1. For a borrower in the TriCounty area with 5% down in 2021, their max purchase price was $817,105.  For a borrower with 5% down in 2022, their max purchase price will be $938,150.  A $121,045 increase in purchasing power.
    2. For a borrower in the TriCounty area with 10% down in 2021, their max purchase price was $862,500.  For a borrower with 10% down in 2022, their max purchase price will be $990,275.  A $127,775 increase in purchasing power.
    3. For a borrower in the TriCounty area with 15% down in 2021, their max purchase price was $913,235.  For a borrower with 15% down in 2022, their max purchase price will be $1,048,525.  A $135,290 increase in purchasing power.
  2. Using a down payment assistance program through the Washington State Housing Finance Commission, a borrower with no funds saved whatsoever for down payment can now buy a home or condo in Washington priced up to $647,200.   
  3. Easily accessible equity just increased.  Let’s say someone bought a home in 2021 with a conforming loan of $750,000.  At the 2021 loan limit, if that buyer wanted to refi and take some money out for debt consolidation or home repairs, the max they could have taken out would have been $26,250.  However with our new 2022 loan limit, that same homebuyer can complete a cashout refinance and access up to $141,250 (Disclaimer:  Terms and conditions apply, and loan to value cannot exceed 80%...but assuming that borrower qualifies and has the equity, this is what the loan limit increase means to them). 

Summary

There is a large number of borrowers without 20%+ down payment saved up who saw housing prices escape their preapproved purchase price over the course of 2021.  With this loan limit increase from the FHFA, those borrowers are back in the game!  By adding buyers back into the active buyer-pool at higher price points, competition will increase for homes priced at or near $1m in 2022 compared to 2021.  And with higher competition, comes escalating housing prices.  Thus, this loan limit increase just cleared the way for housing prices to take one more giant leap forward in 2022. 

Interest Rates

Per Bankrate’s survey of large lenders, the 30 year mortgage interest rate fell this past week to 3.2%, with .35 in discount and origination points.

Mortgage interest rates April 2020 to Dec 2021 graph

Kyle’s Quick Take – Mortgage Market Week in Review

Well that was a volatile week in mortgage…  With news of an unnerving new variant (Omicron) coming out during Thanksgiving Dinner, lots of traders moved money from the high risk/high reward Stock Market and into the safety of Mortgage Bonds on a short Friday trading day.  Basically, traders were in vacation-mode, and taking the low-risk easy way out of stocks while data on Omicron continued pouring in over the weekend and early this week.  In the end, if Omicron proves to be less devasting as feared it could be, mortgage interest rates will get back to their overall trajectory of increasing due to continued high inflation.  In the short term, however, they’re trading slightly lower as traders gobble up Omicron data and figure out if they need to adjust their equity investment strategies. 

WHAT YOU NEED TO KNOW FOR WHERE RATES WILL GO:

  • Good Economic News or Inflation = Bad for Mortgage Interest Rates
  • Bad Economic News or Deflation = Good for Mortgage Interest Rates.  

 

Puget Sound Real Estate:  Charts and Data

A picture is worth a thousand words…

Bond vs interest rates chart

Absorption Rates per NWMLS Real Time Data
Absorption Rate is calculated as:  (Pending Sales) / (Active + Pending Sales)

Residential in Seattle:  68.03%
Condos in Seattle:  40.57%

Residential in Bellevue/Redmond/Kirkland:  76.92%
Condos in Bellevue/Redmond/Kirkland:  79.77%

Residential in Everett/Marysville/Lake Stevens:  85.04%
Condos in Everett/Marysville/Lake Stevens:  81.98%

Residential in Tacoma/Lakewood/Federal Way:  64.89%
Condos in Tacoma/Lakewood/Federal Way:  65.38%

NWMLS King County DFR Median Sales Price graph

NWMLS King County Condo Median Sales Price graph (2)

NWMLS Central Puget Sound SFR Median Sales Price by County graph (1)

NWMLS North Puget Sound SFR Median Sales Price by County graph (2)

NWMLS Central Washington SFR Median Sales Price by County graph (2)

NWMLS Months of Inventroy graph

Absorption Rates for SFR graph (2)

Absorption Rates for Condos graph (2)

 

 

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