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Will Buyers Benefit from the New FHA Limits?

February 21st, 2008 Categories: Chico CA Real Estate News

Economic Stimulus or Stagnation?

by Mike Wiegert

After months of hopes and expectations our legislative and executive branches of government have come together to approve the economic stimulus package containing higher mortgage limits for both FHA and FNMA/FHLMC mortgages. Although this is certainly a step in the right direction, what affect does the new bill really have on our local and regional real estate economy? More directly, will Chico buyers benefit??

In many instances, particularly in California we will see that the plan will provide limited benefits to specific geographic areas. The bill sets the FHA and conforming (FNMA/FHLMC) loan limits to the lesser of $729,750 or 125% of an area’s median home sales price. If 125% of an area’s median home sales price is below the current conforming loan limit of $417,000 the current limit still applies. In other words, you will not be any worse off than you are today. The area median home price is determined by HUD and is based, in part, on the National Association of Realtors data for each Metropolitan Statistical Area (MSA). In California there are 28 MSAs. Our local MSA is Butte County. With the latest figures of median home prices at about $344,000 in the Chico area and about $294,000 county wide, we are not going to see a real benefit from the increase of mortgage limits provided in the bill. Using the county wide median price statistic will not even bring us to the current loan limit and if the Chico area median price statistic is used, that only gets us to about $430,000.

Not much help!

The FHA and conforming limit changes are meant to be temporary and are set to expire on December 31, 2008 unless extended. The new limits will apply to 30 year and 15 year fixed rate, fully amortizing mortgages. So by now many of you that are continuing to read may feel that all of this has little affect on your home buying choices, and you’d be right. But for those looking to buy their second or third home to accommodate an expanding family, the insignificant end product of this part of the economic stimulus bill can have some major affects. Why? Because jumbo loans (those above the conforming limits) carry some hefty surcharges and increased interest rates. When you consider that an extra half to three-quarter of a percent increase in interest rate on a $600,000 loan equals about $250 to $400 per month, a lot of buyers are going to be looking for solutions. Adding on a number of costs and surcharges not common to conforming loans, the end result is the new bill doesn’t really do anything to help sales of upper middle to upper priced homes.

Again, I urge you to seek counseling with your trusted mortgage or Chico real estate professional to look at options when considering purchasing a home.

Now here’s some interesting statistical reporting: In the first six weeks of 2007, the Chico MLS reported only 2 pending (under contract but not closed) homes sales and 145 sold (closed) homes sales. The first six weeks of this year reported a total of 57 pending and 60 closed home sales in the Chico area.

The obvious statement these statistics make is that lesser periods of time do not give an accurate overall view of market conditions. It’s very common to have one month of considerable market activity and the next month can be sluggish. As stated in previous posts, while market activity has shown definite signs of slowing in recent months, sales of homes in our area continue to be brisk.

Whether you believe the market has bottomed out or not, you won’t want to miss some of the great Chico real estate opportunities available today. The interest rates are phenomenal!