Housing affordability is now coming into play in many markets across the U.S. as rising prices have far outpaced income growth. Affordability is a dual function of housing cost and income.
A second twist, beyond affordability, is the maximum loan size that can be sold to Fannie Mae and Freddie Mac, know as conforming loan limits. While most of the U.S. is capped at $417,000, higher priced housing for some cities has a qualifying loan up to $625,500. Loans greater than the local conforming loan limits are classified as jumbo mortgages, and historically have carried greater interest rates and more substantial down payment requirements. Given the new regulatory market, for the first time in 2013, jumbo loan interest rates were less than conventional loans, though for a short time.
Trulia, an NYSE listed company, is a Web-based information marketplace for buyers, sellers and renters, provides a vast array of data and information to service their customers. Their services include detailed listing information, which were gleaned for this study. They ranked the top 100 markets based on the percentage of current listings with asking prices greater than the qualifying loan limits. In San Francisco, for example, 61 percent of listings are priced greater than conforming loan limits – even though San Francisco has the highest conforming limit in the country. El Paso ranks 100th in the country, with just 2 percent of all homes for sale priced above conforming loan limits.
So what markets have the greatest portion of listings that are greater than loan limits in that locale?
Not surprisingly, California, with six cities ranked high in the top-10 markets with listing prices greater than current loan limits, just posted the lowest housing sales rate in six years. Pending sales, however, were up more than 17 percent in March.
What markets have the most listings prices less than qualifying loan limits?
None of these market’s qualifying loan limit is greater than the lowest level of $417,000.
To read the entire Wall Street Journal blog (which requires a subscription) and look at all 100 markets, click http://blogs.wsj.com/economics/2014/04/28/mortgage-loan-limits-hit-buyers/
As the discussion on lending requirements, standards and the future of Fannie and Freddie is debated, a long-lived structure of jumbo versus non-jumbo lending is on the table.