Government-backed lenders will offer $1 million mortgages in more U.S. counties starting next year as home prices reach record highs.
Fannie Mae and Freddie Mac place a cap on the value of home loans that buyers are willing to make, and this varies from country to country depending on their real estate prices.
On Tuesday, the Federal Housing Finance Agency (FHFA) – which oversees both lenders – announced it would increase the maximum Conforming Loan Limit (CLL) in the highest cost areas from $1.09 million to $1.15 million by 2024. For most of the country, the new limit will be $766,550, up from $726,200 this year.
And thanks to the sweeping changes, more counties are now eligible for CLLs over $1 million.
In San Diego County, for example, the limit will increase from this year’s limit of $977,500 to $1.01 million.
Meanwhile, Summit County and Routt County, both in Colorado, will also cross the $1 million threshold this year.
The limits have been pushed up by surging home prices, which have remained strong despite high mortgage rates that have slowed buyer activity.
Data from the FHFA Home Price Index shows that the cost of the average home increased 5.56 percent between the third quarter of 2022 and 2023. The CLLs have therefore also been increased by 5.56 percent, according to the FHFA.
Freddie Mac and Fannie Mae do not originate mortgages, but buy them from lenders, package them for borrowers and guarantee investors that they will be paid. The federal government took control of both companies during the 2008 financial crisis.
A separate index from S&P CoreLogic Case Shiller estimates that homes were 3.9 percent more expensive in September than last year.
Buyers are currently facing one of the worst housing markets in recent memory, thanks to a perfect storm of high home prices and high interest rates.
Although the average 30-year mortgage rate has fallen slightly from last month’s high, it still remains at 7.29 percent as of Nov. 22, according to the latest data from Freddie Mac.
Buyers are currently facing one of the worst housing markets in recent memory, thanks to a perfect storm of high home prices and high interest rates
But two years ago this figure hovered around 3.10 percent.
In real terms, this means that someone buying a €400,000 house in November 2021 would pay around €1,623 per month for their mortgage. This analysis assumes a 5 percent down payment.
But the same buyer today faces monthly payments of $2,641 – more than $1,000 extra.
As a result, sales of previously occupied U.S. homes fell 4.1% in October, the slowest pace in 13 years, according to data from the National Association of Realtors.
But despite stagnant activity, property prices have remained high thanks to a shortage of available housing.
S&P’s Craig Lazzara noted, “While this year’s rise in mortgage rates has certainly suppressed the number of homes sold, the relative shortage of inventory for sale has been a solid support for prices.”