IMPORTANT ALERT:

Conforming Loan Limit to drop from $729,500 to $625,000 or possibly $417,000…not good news for mid-level Westside and South Bay housing.

According to an article in this last week’s Washington Post and confirmed by California Association of Realtors President Leslie-Appleton Young, the Obama administration will suggest the higher conforming loan rate that Fannie Mae and Freddie Mac has of $729,500 (referred to as high balance conforming loans) be lowered to $625,000 and possibly even all the way down to $417,000. The current limits are set to expire at the end of September.

At a meeting with Westside Prudential Real Estate agents this week, Young was adamant the current high balance conforming loan limit will be lowered to start weaning the housing market off of government support. The National Association of Realtors will fight this tooth and nail but it sounds like they will not be able to drum up enough support to win the fight.

Presently, the government backs about 95 percent of all new mortgage originations in one way or another. By letting the high balance conforming limit fall the administration hopes it will entice private investors to fund these larger loans again.

There are strong concerns that withdrawing government support too quickly could destabilize the already weak housing market, especially in areas like the Westside and South Bay where these loans are used a majority of the time. This will also potentially eliminate many FHA buyers in the $750K price range who only have to put 3.5% down to purchase an approved property.

Currently there are few private investors in the high balance conforming sector because they are either unwilling or unable to match the mortgage rates that Government backed securities are able to provide.

It is going to be interesting to see what ultimately happens with a sharp divide between Democrats and Republicans on the issue. Both Buyers and Sellers need to be aware that this is a strong possibility and reality for this market. Homes and condos in the $800K to $1.3M price range will be impacted and the impacted price range will grow if the loan limit is cut all the way back to $417K. Young is fearful the compromise to $625K could be passed up.

Those that are on the fence to either buy or sell in this price range might want to think long and hard about getting into the game with interest rates still bouncing around historically low numbers. A change like this will lead to higher rates…potentially quite a bit higher.