Federal Government to Back Mortgages for $1M Homes

Facts

• In a statement released on Tuesday, the US Federal Housing Finance Agency (FHFA) said the limit for federally-backed mortgages in high-cost areas in 2023 would rise to $1.089M, up from $970.8K in 2022. The limit for the rest of the country will increase from $647.2K to $726.2K.
• The increase reflects the rapid rise in home prices, particularly in places like New York and California.
• The new limit will result in more houses qualifying as what's termed "conforming" loans, which are mortgages that meet Fannie Mae and Freddy Mac's funding criteria for loans that can be resold to investors. This can relieve high-priced purchasers as those loans usually offer lower interest rates.
• Fannie Mae and Freddie Mac, which the government took over during the 2008 housing crisis, don't sell mortgages but buy them from lenders. They then repackage them as securities and guarantee repayment of principal and interest to investors.
• The current national average mortgage rate is 6.6% and 6.9% in high-cost areas like California's East Bay. In the Bay Area, housing analysts say the change may help those looking to purchase at the lower end of the local housing market, but won't help many buyers since the region's median home price is $1.2M.
• The FHFA routinely resets its limit in accordance with changes in the housing market with the 2023 hike raising the limit by 12%. This is in contrast to a 40% rise in median house prices nationally since 2020.

Sources: Press Telegram, Wall Street Journal, CBS, East Bay Times, and Dnyuz.

Narratives

• Narrative A, as provided by Real Deal. $1M doesn't get you nearly as much as it used to, even when compared to just a year ago. As a result, the latest FHFA limit increase won't help as many people as it would have in the past. First-time homebuyers in growing markets like California are dealing with costs of $1.25M or more, and the super-wealthy will still be the only ones able to afford homes easily.
• Narrative B, as provided by American Financing. The FHFA's latest limit increase will help not only prospective homebuyers qualify for mortgages but current homeowners, too. More existing homeowners will now be able to cash out refinance, meaning they'll gain access to extra cash in hand for expenses such as home improvements.