It has been more than eight years since the conforming loan limit was greater than the median home price in Orange County.
Interestingly, home prices dipped last year and so, in theory, more folks were covered by the limit than in 2006, but only slightly more. The conforming loan limit of $417,000 is the maximum loan size that Fannie and Freddie will buy, bestowing the lowest rates and fees on the lucky consumers who qualify.
The Beltway is buzzing with desire to raise the limit, possibly to nearly $730,000. So now is as good a time as any to look back at the how much the limit historically has covered home prices by comparing it to an average monthly median price for each year. (The median is the price at which half the homes sell for less and half for more.) Here’s a table showing the limit and avg. median going back to 1988 (coverage is limit/median)…
| Year | Limit | Avg. median | Coverage |
|---|---|---|---|
| 2007 | $417,000 | $610,979 | 68% |
| 2006 | $417,000 | $627,688 | 66% |
| 2005 | $359,650 | $590,167 | 61% |
| 2004 | $333,700 | $515,667 | 65% |
| 2003 | $322,700 | $409,375 | 79% |
| 2002 | $300,700 | $347,750 | 86% |
| 2001 | $275,000 | $296,244 | 93% |
| 2000 | $252,700 | $265,021 | 95% |
| 1999 | $240,000 | $239,042 | 100% |
| 1998 | $227,150 | $223,369 | 102% |
| 1997 | $214,600 | $201,479 | 107% |
| 1996 | $207,000 | $190,208 | 109% |
| 1995 | $203,150 | $189,375 | 107% |
| 1994 | $203,150 | $200,438 | 101% |
| 1993 | $203,150 | $201,125 | 101% |
| 1992 | $202,300 | $210,792 | 96% |
| 1991 | $191,250 | $214,517 | 89% |
| 1990 | $187,450 | $212,417 | 88% |
| 1989 | $187,600 | $211,271 | 89% |
| 1988 | $168,700 | $181,326 | 93% |
A nearly two-fold increase in borrowing limits would be unprecidented and devistating for the future stability of the OC, and other expensive places in CA. As it stands now, people can barely afford to cover there current mortgages, so what good would it be to create higher limits for borrowing? It will only bring more delinquncies, foreclosures, and economic collapse. Home prices must correct, and borrowing limits should only go up by the historically small percentages that they have done so historically. A $730,000 limit is proposterous. A more realistic approach would be to raise the limit to 10%-15% to approximately $479,550 maximum. People need to understand hard money, and stop playing with imaginary money that will take them more than their lifetimes to pay off.
Looks like the conforming limit has tracked OC homes pretty well until the recently falsely exagerrated home prices arrived. Since OC median will soon be 500K or less no reason to increase the limit beyond 500K - especially FNMA has had recent financial troubles and hasn’t proven it can take on bigger loans and stay financially sound.
Contrary view - GSE’s abandon the median price to let Wall Street fill in. . . and WS failed when their CDOs couldn’t stand up to further examination - creating a second nose dive in an already deteriorating real estate market.
Here’s a thought - raise the conforming limit, but qualify the borrower!
Shouldn’t the conforming limit be based on a calculation that is a function of the median income, ability to repay, etc.?
So many people in office have already agreed that properties are overvalued and people cannot qualify due to the DTI ratio limitations and downpayment restrictions. They think this is a fix for that?
This smells more of election year tactics than anything else. The next president’s administration will have one hell of a problem on their hands.
If you are heavily biased in cash, I highly recommend spending some time to quantify in the new government sponsored risk to holding deflating currency.