December 5, 2023 – New Conforming and FHA Loan Limits

Economic Commentary

Fannie Mae, Freddie Mac and the Federal Housing Administration have all announced higher loan limits for 2024. This is great news for homebuyers because these agencies give them access to low-downpayment financing for their homes. Having access to low-downpayments is key as the cash needed to purchase is often cited as the number one barrier to homeownership. Many don’t realize that they can purchase with as little as 3.0% of the sale price down through these agencies and there are downpayment assistance grants available for many who qualify.

Even further, this says a lot about the state of the housing market in general. Despite much higher interest rates in 2023, the housing market continues to be resilient, with house prices continuing to appreciate – though not at the levels seen in 2021 and 2022. More accurately, house prices gained partially because higher interest rates kept homes off the market in what has been termed the “lock-in” effect. As rates stabilize and even drift down a bit, it is expected that more housing inventory will become available to meet what is expected to be rigorous latent demand.

On another note—two other agency programs did not announce higher limits. The Department of Veterans Affairs (VA) and the United States Department of Agriculture (USDA) rural housing programs did not need to make an announcement because their loan limits are not set by the agencies. For example, few realize that veterans and active military can purchase a home with no money down for well over a million dollars. That is an incredible benefit and well deserved because of their service. Rural Housing Service loans are much more modest because there are income limits associated with the program.

Weekly Interest Rate Overview

The Markets. The weekly Freddie Mac Mortgage Rate Survey continued to reflect a change in the markets as rates are down over .50% from their highs. The good inflation news also continued this past week with the Fed’s closely watched Personal Consumption Expenditures Price Index on target with forecasts – up 3.0% year-over-year. For the week ending November 30, 30-year rates fell to 7.22% from 7.29% the week before. In addition, 15-year loans decreased to 6.56%. A year ago, 30-year fixed rates averaged 6.49%, more than 0.5% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Market sentiment has significantly shifted over the last month, leading to a continued decline in mortgage rates. The current trajectory of rates is an encouraging development for potential homebuyers, with purchase application activity recently rising to the same level as mid-September when rates were similar to today’s levels. The modest uptick in demand over the last month signals that there will likely be more competition in a market that remains starved for inventory.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

The Federal Housing Finance Agency (FHFA) has announced an increase in conforming loan limits for Fannie Mae and Freddie Mac for 2024. Overall, the limits increased by 5.56%, the same percentage increase in home prices measured by FHFA’s Home Price Index for the past 12 months. In 2023, the maximum conforming limit for one-unit properties was $726,200, thus the increase was just over $40,000 to $766,550. The maximum limits for high-cost areas such as the New York and Washington DC Metropolitan areas is 50% higher, or $1,149,825 for a one unit property. The Federal Housing Administration also released their 2024 limits for FHA loans. FHA base limits are at 65% of the base conforming limits ($498,257) with the high-cost limits at the same level as conforming high-cost limits.. Reverse mortgages are also at the high-cost limit nation-wide. Sources:  FHA and FHFA

In the face of soaring housing costs, a growing number of young homebuyers, primarily millennials and Gen Z, are embracing the concept of “house hacking.” This trend involves renting out a portion or the entirety of their homes to generate additional income. According to a recent Zillow survey, 55% of Millennial and 51% of Gen Z buyers consider the opportunity to rent out part of their home for extra income to be very or extremely important when making home purchase decisions. This house hacking trend is not limited to the younger generation, as 39% of all homebuyers also find the prospect appealing—a notable eight-percentage-point increase over the past two years. Additionally, Zillow’s 2023 Consumer Housing Trends Report (CHTR) highlights that more than half of millennial (59%) and Gen Z (54%) buyers believe it is highly important to be able to rent out their entire home in the future, compared to 43% of all buyers. “Younger homebuyers — mostly Gen Z and millennials — are especially into the idea of rental income as a key factor in their home-buying decisions,” said Zillow senior population scientist Manny Garcia. “For those first-time buyers navigating the ‘side hustle culture,’ where a regular 9-to-5 might not quite cut it for homeownership dreams, rental income can step in to help with mortgage qualification and smoothing out those monthly payments.” Latino homebuyers, in particular, prioritize the potential for rental income at a higher rate compared to other racial groups. Among Latino buyers, 51% express interest in renting a portion of the home for additional income while residing in it, followed by 46% of Black buyers and 40% of white buyers. Source: National Mortgage Professional

A recent Fannie Mae poll reveals that over 80% of renters would like their on-time rent payments to be factored into their credit scores. Rent is often a renter’s largest monthly expense, and credit scores play a huge factor in the ability to pursue financial and economic opportunities, such as obtaining mortgage or car loans, credit cards, or student loans. The survey results further reveal the value that renters place on their credit scores, as 87% of respondents believe that having a good credit score is important. In addition, 82% of renters who always pay their rent on time reported that they would expect to see an immediate increase in their credit score if rent payment history was included. Crediting renters for on-time rent payments promotes greater financial stability, while setting renters up for a brighter financial future. Fannie Mae Multifamily has been helping renters build their credit through our Positive Rent Payment pilot. With the strong results Fannie Mae has seen during the first year of the pilot, they have announced that the Positive Rent Payment pilot will be extended through December 2024. Many property owner/operators participated in the pilot program at no cost and were able to see positive results, and our early data shows a trajectory toward better financial health for many renters. Source: Fannie Mae