Saturday, January 26, 2008

Uh oh! Conforming loan limits may be boosted!

According to this January 25 story by E. Scott Reckard and Peter Y. Hong, the stimulus plan will provide a year of cheaper loans for Californians buying or refiing higher cost homes. The House and the White House have agreed to raise the cutoff point from $417,000 for loans that would be eligible to be purchased by government-sponsored mortgages.

This is a big step being taken to "stabilize the housing and mortgage market", according to a spokesman at Countrywide, which took a lead in pressuring the politicians to raise the loan limits. (Bleegh!) The California Mortgage Banker Association says "this is a very positive development for California's lenders and homeowners." (Barf!) And CAR is jumping for joy.

At least not everybody is jumping for joy at this strategy of fueling the drug addict with more drugs. Edward Leamer at UCLA points out that the markets have been derailed by bubble-era housing prices and that hasn't changed, adding that a conforming loan limit in the $700,000's is still beyond the reach of most. There is opposition from critics who say the plan shifts the risk from the private sector to the government.

The stimulus package isn't expected to be signed off for about six weeks. We will have time to see if raising the conforming loan limit does anything to Redondo Beach sales this spring.


Blogger redondo_beach_dude said...

I think that Leamer is right and prices must fall, but maybe not before this cheaper $ causes some to try to catch that falling knife, resulting in a brief price run-up this spring. As you are well aware Bearmaster, prices and inventory in Redondo have been holding their breath for awhile now. Do you see some taking this a sign to buy the dip? Not everyone thinks ManHerRed will drop in price. We do, and have been waiting patiently since Q1-05 to buy back in... but this apartment living is getting old... BUT, my wife and I WILL NOT give in. May just have to wait until '09.

7:19 AM, January 26, 2008  
Blogger bearmaster said...

Now that risk is shifting away, I am assuming that a stupidity vacuum will be created and there will be some parties in real estate transactions rushing to fill the void, Redondo Beach Dude! This is a bong hit to the market, pure and simple. Yes, I think this will encourage some to buy the dip. Sales have been DEAD the past few months, the market has no place to go but bounce UP.

Whether the market will bounce ENOUGH to repair the erosion of the last year is questionable, though.

The conforming loan limit is being raised, possibly to $725,000. There are a heck of a lot of Redondo Beach properties that will wiggle in under that limit. The loans made to the conforming limit will thus be somewhat cheaper.

I don't know what the terms of conforming loans are. Are they fixed 30 year? And how do those terms compare to the terms that Redondo Beach buyers have mostly been getting? I'd have to know all that before anticipating whether we'll have a bounce or how much of a bounce we will have.

I think we may have to wait beyond 2009. There are still too many analysts trying to call a bottom, and if this stimulus package gives a bong hit to the market, then we'll have to wait even longer for the drug to wear off.

If the bong hit works, and more buyers are buying due to the new conforming loan limits, I would expect the median price to drop, since it has been upwardly skewed by the high-end buyers who can write checks for their new homes.

7:58 AM, January 26, 2008  
Blogger GuyinLA said...

This may be all ado about nothing:

1. There is some opposition in the Senate to the House plan. Senator Shelby is the ranking member of the banking committee and Senator Martinez used to be Sec. of HUD. Both have expressed strong reservations to raising the limit. If the Senate opposes this, it cannot become law.
2. You allude to this but Fannie/Freddie have strict requirements, including fully documented income ONLY. Bottom line: the only borrowers that will be helped will be those that really CAN afford the house.

5:14 PM, January 28, 2008  
Blogger bearmaster said...

Hello GuyInLA,

If your information is correct (it sounds like you know more about it than I do), I hope you are right about the opposition in the Senate. Though Dubya will probably talk it up in the State of the Union speech.

It just annoys the heck out of me that they've been wanting such a drastic hike up in conforming loan limit. I would have guessed maybe 10-20% the most, which would have made no difference.

There has been much squawking about the bump in the conforming loan limit so perhaps the Senate has been paying attention.

What I still don't know is how the conforming loan requirements, if they were to go through, would compare to the loan requirements on RB borrowers over the last year. And I don't know how many cancelled escrows there have been due to a tightening of the screws, as opposed to potential buyers just sitting back, waiting, and not even bothering to try buying a house.

Tantalizing stuff...

6:37 PM, January 28, 2008  

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