Through the Looking Glass looks at economic and real estate trends through two different lenses: the “glass half full” of the optimist and the “half empty glass of the pessimist.”
Hum: Runaway housing inflation means the federal government will now support nearly a million dollars in mortgages, including deals in Los Angeles and Orange counties.
Background: The Federal Housing Finance Agency says the maximum mortgage loans Fannie Mae and Freddie Mac can buy in 2022 will grow 18% – the highest percentage ever – to $ 970,800.
These two government-backed agencies support so-called “qualifying” mortgages, both purchase loans and refinancing loans. These subsidies usually lower the interest rate that borrowers pay compared to what is charged on larger “giant” loans.
Glass half full
The increased premiums for the two agencies are the result of a mandatory annual review that includes complex formula of the price index.
This allows you to buy government-backed mortgages to keep up with market prices, especially geographically. The key factor is the Federal Housing Finance Agency’s house price index, which has jumped 18% over the past year.
This means that the country’s most expensive markets will receive a higher “matching” credit limit for the coming year – $ 114,425 from $ 822,375. The ten California counties (Los Angeles, Orange, Alameda, Contra Costa, Marin, San Benito, San Francisco, San Mateo, Santa Clara, and Santa Cruz) plus areas surrounding New York and the District of Columbia, and also all states of Alaska and Hawaii are eligible for the new limit.
What is it worth? If that government support lowers the borrower’s rate by a quarter of a percentage point, my reliable spreadsheet says that’s roughly $ 130 saved per month on a $ 970,800 mortgage.
At the other end of the price range – in many so-called affordable communities in the country – the corresponding loan limit is now $ 647,200 versus $ 548,250. (The table indicates the maximum savings are $ 90 per month.)
In the middle are certain markets with intermediate restrictions based on local prices. For example, here are the new maximum respective loan sizes for other Southern California counties: San Diego ($ 879,750), Ventura ($ 851,000), Santa Barbara ($ 783,150), and Riverside and San Bernardino ($ 647,200 US dollars).
Glass half empty
Some amazing markets are also getting a loan ceiling of $ 970,800, which says a lot about the country’s housing affordability problems.
Why are Pennsylvania’s Pike County and West Virginia’s Jefferson County listed? These two states are often listed as “cheapest places to live”. Well, these counties have become remote suburbs of expensive New York and Washington, respectively.
Other beneficiaries of the government’s mortgage bounty are counties known for high-end resort life, such as Nantucket and Dukes in Massachusetts (Martha’s Vineyard); Utah Watch & Summit (Park City); Wyoming’s Teton (Jackson Hole); and Teton Idaho.
Note that holiday home and resale mortgages can be purchased by Fannie Mae and Freddie Mac, so these higher maximum loan amounts apply.
It is also worth noting that restrictions on the purchase of mortgage loans by an agency for real estate that are not the main place of residence of the borrower were recently lifted.
Higher limits may help some borrowers buy more expensive homes today. To be honest, I would like any federal economic aid to be varied due to the differences and fluctuations in the cost of living in the regions.
Imagine if the sum of the stimulus test in a pandemic era were adjusted for the cost of living in the region where the taxpayer lived.
And the real estate industry, from mortgages to real estate agents, will welcome this piece of government intervention because it’s good for their bottom line. These same people often struggle with attempts by other governments to make housing more affordable, such as rent controls.
So let’s be honest. The housing sector has become addicted to various forms of government subsidies for the mortgage business.
Without these state-owned mortgage giants, home buying would be a very different matter. And you might argue that federal “bailout” – making financing cheaper – actually raises prices and lowers the chances of many homeowner copycats.
Does anyone ever want to discuss how misguided government support for housing can be?
Consider an example: In an era of perceived housing shortages, why provide financial support for second home purchases while increasing subsidized mortgages as well?
Jonathan Lansner is a business commentator for the Southern California News Group. You can reach him at [email protected]