Government mortgage companies Fannie Mae and Freddie Mac will begin backing home loans nearing $1 million.
The move comes as real estate prices continue to rise — and as the housing market witnesses a blistering pace of sales. The most recent report from the National Association of Realtors says that average home prices have climbed by 13% year-over-year to $352,800.
The Wall Street Journal said:
The maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac are expected to jump sharply in 2022, a reflection of the rapid appreciation in home prices nationally over the past year.
The increase may make it easier and cheaper for some borrowers to buy a home, particularly in more expensive areas of the country, but the higher limits are also likely to elevate debate about how big of a mortgage is too big to be backed by the government…
Currently, the government-controlled mortgage companies can back single-family mortgages that have balances as high as $548,250 in most parts of the country and up to $822,375 in expensive housing markets, including parts of California and New York. Those limits are expected to jump to a baseline level of about $650,000 in most jurisdictions and to just under $1 million in high-cost markets.
According to the Journal, the new loan limits will be announced by the Federal Housing Finance Agency on November 30 and implemented in January.
Since the onset of COVID-19 and the lockdown-induced recession, the Federal Reserve has been purchasing $40 billion per month in mortgage-backed securities in order to stimulate the economy. Fed Chair Jerome Powell told lawmakers in July that the purchases were indeed contributing to rising home costs.
“Housing prices across the U.S. as a whole increased in May by more than 15% from the previous year,” Sen. Pat Toomey (R-PA) said to the lawmaker. “15% clearly is making housing less affordable, more out-of-reach for more people… Are you at all concerned about the unintended consequences that are associated with $40 billion worth of mortgage-backed security purchases that continue month after month?”
“Housing prices are going up, as you mentioned, around 15%. This is a very high rate of increase,” replied Powell. “A number of factors are contributing — monetary policy is certainly one of those factors. There are also other factors: people have very strong balance sheets, so they’re able to make down payments. There are also supply factors that are constraining the supply, at least temporarily.”
Powell affirmed that mortgage purchases are “somewhat more supportive of housing” than other asset purchases — although that is “not their intent.”
According to the National Association of Realtors’ Profile of Home Buyers and Sellers, houses are selling at the fastest rate observed during the survey’s four-decade history.
“Buyers moving quickly during the pandemic, coupled with all-time-low inventory, led to a decline in time on market to the shortest ever recorded, which was just one week,” National Association of Realtors executive Jessica Lautz explained.