The Federal Housing Authority (FHA) provided some news the housing industry can be thankful for this holiday season – an increase to loan limits across 3,011 counties. In particular, some of the markets that have faced the most rapid price appreciation over the past few years saw a sizeable jump (see graph below). This news comes a few weeks after the Federal Housing Finance Agency announced higher conforming loan limits ($453,100 standard and $679,650 for high-cost). Our Manager of Housing Economics, Ali Wolf, wanted to understand the potential impact of the higher loan limits on the housing market, and provides some insights below.
The FHA made changes to both the floor and ceiling across the country, now $294,515 (think lower cost markets like Pittsburgh) and $679,650 (LA/San Fran/DC, etc), respectively. While these increased limits are welcome news, in many markets they are largely playing catch up to rising home values. Seattle was the winner across the board for 2018 with an absolute value increase of $75,000 and a 13% change (more on this later). Other notable year-over-year movers include Salt Lake City (8.4%), Minneapolis (7.3%), and Denver (7.2%). Our expert in the Denver market and Senior Vice President of Advisory, Mike Rinner, said, “I’m pleased to see the FHA loan limits are responding to the sustained home price appreciation we’ve experienced here in Denver. The higher limit will undoubtedly help first-time buyers struggling to save for a down payment.”
*This table looks at counties among the top markets in the country. The full list can be found on the FHA’s website.
Breaking down the data, we analyzed actively selling communities in these markets to see what the impact might look like assuming they could become FHA-approved. Markets like Orlando, Riverside, Minneapolis, Denver, and Seattle have the most potential to benefit from the higher rates. In these markets, there’s a 30%+ increase in the number of actively selling communities that fall under the new loan limits. In addition, these markets could see an increase in sales activity; the absorption rates for communities under the FHA loan limit compared to those above range from 38% higher in Riverside to 76% more in Seattle.
Deanna Sihon, our Vice President of Advisory in Seattle, explained, “While the new limits will help first-time buyers and the resale market, the average price for a new home in King County is almost $900K today. Even still, nine new communities will now fall under the new loan limits, helping those neighborhoods that are on the outer edges of King County where pricing is more affordable.”
While many in the industry argue the increases are not enough, this is still a step in the right direction. In 2016, only 188 counties saw higher loan limits and that number increased in both 2017 and 2018. This increase indicates that the U.S. Department of Housing and Urban Development (of which the FHA is a part of) is listening, and we need to keep advocating for the industry.
Contact us to discuss how we can help you with positioning your product to attract FHA buyers.
Ali Wolf, Manager of Housing Economics
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