July 24, 2008
Will San Francisco Suffer From Premature Loan Limit Reduction? No.
Amongst other things, H.R. 3221 permanently increases GSE "conforming loan" limits from $417,000 to a maximum of $625,500 (or 115% of the local median home price, whichever is lower). And it’s that “maximum” that has a few readers worried (or at least a little confused).
The question: will H.R. 3221’s conforming loan maximum of $625,500 supersede San Francisco's temporary conforming loan limit of $729,750? Our answer: we very much doubt it (we know, not exactly definitive but we’re still seeking written confirmation).
Regardless, do keep in mind that the $729,750 conforming loan limit for high-cost areas as brought about by the Economic Stimulus Act of 2008 is set to expire in five months. And whether or not that act gets extended is another issue altogether.
UPDATE: Definitively confirmed (and thank you for plugging in).
∙ Bam! Bam! Barney Frank’s Bailout Bill Survives As A Provision [SocketSite]
∙ H.R. 3221: Foreclosure Prevention Act of 2008 [govtrac.us]
∙ If Lowering Rates Isn’t Working, Perhaps Increasing Limits Will [SocketSite]
First Published: July 24, 2008 2:00 AM
Comments from "Plugged In" Readers
The lower loan limit takes effect after the current loan limit expires on 12/31/08.
Posted by: Tahoe KId at July 24, 2008 5:42 AM
Good grief: "definitively" confirmed? The root of that word is "finite", which isn't quite consistent with a 694 page document. One could claim that document definitively confirms who shot JR and I'd be hard pressed to prove otherwise.
Anyone know where in that monstrous document the limit is located. If I search on "625" nothing comes up, other than *page* 625.
Posted by: tipster at July 24, 2008 12:01 PM
There is a short article in today's Chronicle that summarizes the bill....
Posted by: r at July 24, 2008 12:21 PM
Anyone know where in that monstrous document the limit is located.
Try page 98 for the effective date for high-cost areas:
"...take effect upon the expiration of the date described in section 201(a) of the Economic Stimulus Act of 2008..."
Nothing about JR in the document. Now with respect to JFK...
Posted by: SocketSite at July 24, 2008 3:16 PM
Thanks SS. I guess that anwers the question of whether 729K will be extended. It won't. The limit goes down in 5 months and stays down.
Posted by: tipster at July 24, 2008 6:29 PM
I'm surprised this thread isn't attracting more attention. For potential buyers who can't put 20% down on a property, loans that can be resold to FM/FM are currently the most reasonable--if not only--loan opportunity. Once FM/FM reduces their loan limit in the Bay Area from $730K to $625K, doesn't this remove a big price support for the popular $700-$850K price range? In fact, the effect should kick in even before the limits officially reset. Why would someone purchase a $750K home today knowing that in five months the potential buyer pool for that home shrinks substantially? Obviously I am speaking here of a buyer who anticipates having to sell in, say, 4-7 years rather than 10 or more.
Posted by: Mark at July 25, 2008 9:44 AM
it seems like 20% down will be the realistic requirement in this market. i think its reasonable. i also think that will slow the market down and bring prices down as less buyers are able to get into the game.
Posted by: paco at July 25, 2008 10:03 AM
It is ironic -- this provision will provide a significant increase in conforming loan limits for nearly the entire country and is thus being touted as a stimulus, but it lowers the limit for SF by a sizable amount. Mark is right that with interest rates shooting up lately, particularly for jumbos, this could have a big impact here, not only for potential buyers but for the much larger pool of ARM-holders looking to refinance in coming months and years. Purchases and refis for homes over $700,000 (assuming 20% down) will have to deal with the higher jumbo rates, now at their highest levels in 8 years.
Posted by: Trip at July 25, 2008 10:12 AM
I find it interesting that even lending agents seem caught off-guard by this. My lender (with whom I have been looking at loans in the $650K-$750K range with 10% down) sent me this email yesterday in reference to his conversations with other lenders: "Right now when I speak to lenders I am getting “I don’t know”, I am not sure, and we will notify everyone upon bill passage”. I can tell you I have not heard or seen any indication of changes to the $729,750 present limit from the lenders."
My wife and I are visiting homes in Rockridge and North Berkeley this weekend with our real estate broker, and I am looking forward to hearing how his already cautious, even pessimistic, views of the market are affected by this.
Posted by: Mark at July 25, 2008 10:50 AM
As a bit of projection/catharsis, I wonder if there is the seed of a major psychological change for the Bay Area in this seemingly marginal rule-change. The barriers to entry were already high for people looking to settle down in the Bay Area (especially those planning for kids). This rule removes the possibility of even a mid-tier home in a decent neighborhood for a large slice of what were formerly potential buyers. It is one thing for a young couple (like my wife and me) to swallow the notion that we should aspire to a $750K 2/1 prospector hut in the East Bay, but it is another to be told that we cannot get a reasonable loan for it without $150,000 cash (at least not until private lending markets ease up over future months/years).
(Disclosure: my wife and I have lots of savings, but of the tax-deferred variety. We have no consumer debt, and we bring in a top-decile income. We have about $70K for a down-payment. I suspect we're a common scenario among current hopeful buyers.)
Obviously this is an issue of delayed gratification. When people can get financing and immediately enjoy a home, they will make many sacrifices to own in the Bay Area and simultaneously pump up the mystique of the Bay Area as the "place to be." But the most common properties--the shoe-box condos, the tiny ramblers--inevitably look a lot less attractive and a lot less worthy of sacrifice if people can't touch them without many years of working/saving.
I think the Bay Area is entering a test of how much pull its self-image as the most awesomest place to live really has. Paco is right: higher down payments should be required. This change will jar the region, not just prospective home buyers. For those people with $70K as a down payment (to pick a convenient number), the choice to put 20% down tomorrow on a legitimately great home in, say, Minneapolis or Chicago starts to look awfully tempting when compared to sweating out another few years in the Bay Area with only mediocre digs as the ultimate pay-off.
Posted by: Mark at July 25, 2008 12:53 PM
Are you all idiots? San Francisco. This recession is one of a kind of recession, with deflating balance sheets of the consumers and financial institutions. You huy this sucker and you will be holding a loss of 200-500K in the next a few years.
Posted by: idiot common at February 22, 2009 10:24 PM
Are you saying that it's different this time?
I think we all know the answer to that ...
Posted by: Jimmy (No Longer Bitter) at February 23, 2009 8:07 AM