Friday, November 03, 2006

Say What? Conforming Loan Limit May Decrease?

I saw this short article about the conforming loan limit (the maximum loan amount that Fannie and Freddie will purchase) may drop as the average price of homes nationally is dropping.
That decision will be up to the Office of Federal Housing Enterprise Oversight. But if the latest figures regarding home prices from the Federal Housing Finance Board are any indication, the ceiling on loans that can be purchased by Fannie Mae and Freddie Mac could slip next year, perhaps substantially.
The limit is based on the percentage change in the average price of both new and existing homes sold from one October to the next as measured by the FHFB, so the final word on the maximum for '07 is still a month away.
But according to the FHFB's latest survey, which was released last week, the average price of houses fell 2.9% in September, from $306,100 to $297,200. If that percentage decline is applied to the full year, the GSE loan limit would fall to $404,907.
But with home sales continuing to slow and the inventory of unsold homes continuing to build, the decline, if indeed OFHEO decides a lower limit is in order, could be even more drastic.
Over the last 12 months, the average price of houses has been lower than September's figure only once. That was in January, a traditionally slow month in the housing market, when the average was $295,700.
As recently as June, the housing finance board reported the average price as $317,900.

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