Weekly Economic Update - Higher Loan Limits

You come back from a holiday and always find the in-box stuffed. This week we catch up on lots of news – new loan limits, lackadaisical construction data, and two price reports.  There were also three home sales reports and we didn’t want to give them short shrift.  We will give them our full attention  next week.

We might have enjoyed a week off, but the news never stops. There is so much to talk about that we will push discussion of the three October home sales reports, the last of which is being released as we go to press, into next week.

The headline is an announcement of new and higher loan limits for conforming (Fannie Mae and Freddie Mac) mortgage loans. These limits are reevaluated every year and usually increase, although they did not budge for several years during the Great Recession. This year the baseline limit was $453,100; starting on January 1, 2019 it will be raised to $484,350.

The baseline limit is not terribly important to the chunk of Americans who live where higher home prices prevail and in those areas there are local limits which can be as high as 150% of the baseline limit. The top loan limit will increase from $679,650 to $726,525.

Loan limits are calculated using local median home prices and the Federal Housing Finance Agency’s Housing Price Index (FHFA) which posted a 6.9% annual increase in the third quarter of 2018. Residents in some counties where limits were above the baseline in 2018 may find the recalculation has raised their limits more than 6.9% while others may find them unchanged.

New limits, including the higher baselines and ceilings for two-to-four unit properties, can be viewed on either Fannie Mae’s or Freddie Mac’s websites.

Early Warning?

Residential construction news continues to dismay, and not in a good way. First, the National Association of Home Builders’ Index measuring builder confidence took a deep dive, dropping eight points to 60, the lowest level in more than two years. That was a heads up that October’s residential construction numbers would continue to be sluggish.

Building permits were at a seasonally adjusted rate of 1.26 million, down slightly from September and 6.0% lower than a year earlier. Housing starts picked up a bit, increasing by 1.5% to 1.228 million units, but months of lackluster performance leave starts down by 2.9% compared to October 2017.

Finally, there was price data. Both Case-Shiller and the FHFA home price indices showed appreciation is slowing, albeit at a slow pace. Case-Shiller’s National Index, which covers all nine census divisions gained 5.5% in September compared to an annual gain of 5.7% in August. The monthly increase in FHFA’s index was 0.2% after several months at 0.4%. However, all real estate is local, and both reports showed double digit appreciation continues in several western states, especially Nevada and Idaho.



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