New Record: Conforming Loan Limits Jump 18%

What does this mean for the future of real estate in 2022?

Fannie Mae and Freddie Mac just announced an 18% conforming loan limit increase for 2022, the largest leap on record since the 15.9% jump in 2006. On the heels of the home price appreciation we all witnessed during the coronavirus pandemic, the new limit will be set at $647,200 in the majority of the U.S., as reported by Federal Housing Finance Agency (FHFA).

Some areas, however, will see close to a $1 million conforming limit, including the Northwest’s own Alaska with a baseline set at $970,800 for one-unit properties by statute. Other notable increased conforming loan limits in the Northwest Region include Blaine and Camas counties in Idaho ($648,600), and King, Pierce, and Snohomish counties in Washington state ($891,250). The debate amongst critics straddles between the inevitable lower interest rates this increase will create for borrowers, while also the potential for continued home price appreciation with homebuyers being priced out of the market.

New data from FHFA showed more historic leaps in the House Price Index in the third quarter with 18.5% annual gains. Idaho alone saw a yearly house price increase of over 35%, making for a tough climate to compete in. Affordability continues to the be the topic of discussion in the home buying market, with prices skyrocketing at a faster rate than your median household incomes, which actually saw an annual decrease of 2.9% in 2020, as reported by the U.S. Census Bureau. With the inventory shortage, we’re also seeing affordable housing areas being overrun by investors looking for opportunities to snatch properties which in turn, keeps home prices high.

And while you can weigh the pros and cons of these record-breaking increases, we can’t help but wonder what kind of setbacks housing leaders might encounter as they strive to increase minority homeownership. Back in June 2021, the Department of Housing and Urban Development (HUD) made headlines after they unveiled a plan to create 3 million more Black homeowners by 2030. However, FHFA reported that borrowers in 2019 had almost double the amount of income as borrowers in 2018, a demographic that was less likely to be Black or Hispanic. At Keller Williams, the diversity, equity, and inclusion initiative remains at the forefront, with newly appointed Head of DEI Julia Lashay Isreal spearheading efforts across the organization. “Choosing to embrace diversity not only allows real estate professionals to grow their businesses, but also improves communities through increased homeownership,” said Israel. Needless to say Keller Williams will be watching how these new conforming loan limits impact diverse communities interested in purchasing homes.

On an episode of The Real Look podcast that aired in late November, hosts Bruce Hardie and Chase Williams of the Keller Williams Northwest Region discussed what were, at the time, just industry rumors foreshadowing an increase in conforming loan limits.

BH: I think this conforming loan limit increase is actually going to be good news. For a lot of those first time home buyers in those high price markets, they’re now able to actually get their home loans at a lower rate with a lower down payment.

CW: It also points back to the fact that real estate is still a very hyper-local business. The average price point in Bellevue is very different than the average price point in Yakima, right? As realtors, we need to be aware of what those price points are and we need to understand what that means for our clients.

BH: Well, I know when I got in the industry, the average sales price in our market was $75,000. So the conforming loan limits were down about $120,000.

CW: Bruce, don’t date yourself on the podcast.

Only time will tell what the future holds for real estate, but it’s safe to say we’ll be keeping a close eye out to keep buyers, sellers, and agents informed.

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