On Tuesday the Federal Housing Finance Agency (FHFA) announced the 2018 maximum conforming loan limits for mortgages to be acquired by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
According to the release, the new year’s maximum conforming loan limit for one-unit properties will be $453,100—representing an increase from $424,100 in 2017.
Additionally, the FHFA published its Q3 2017 House Price Index (HPI) report, including estimates for the average U.S. home value over the last four quarters. The report found that with relatively favorable economic conditions and a continued shortage of housing supply, price increases in the third quarter were generally robust and widespread.
"At some point, declining housing affordability should temper appreciation rates in some of the nation's fastest appreciating markets, but our third quarter results show few signs of that,” said Andrew Leventis, FHFA Deputy Chief Economist.
Based on the requirements set by the Housing and Economic Recovery Act (HERA), Fannie Mae and Freddie Mac have to adjust their conforming loan limit each year to reflect the change in the average U.S. home price.
According to FHFA's seasonally adjusted, expanded-data HPI, house prices rose by 6.8 percent year-over-year. This establishes the baseline maximum conforming loan limit in 2018—and determines that it will increase by the same percentage.
When it comes to high-cost area limits, “areas in which 115 percent of the local median home value exceeds the baseline conforming loan limit the maximum loan limit will be higher than the baseline loan limit,” the report notes.
This means that HERA establishes the maximum loan limit in those areas as a multiple of the area median home value, while setting a "ceiling" on that limit of 150 percent of the baseline loan limit.
Therefore the new ceiling loan limit for one-unit properties in most high-cost areas will be $679,650—or 150 percent of $453,100.
Due to the continuously rising home values, and the increases in the baseline, ceiling, and maximum loan limits, the maximum conforming loan limit will be higher in 71 counties in the U.S. in 2018.
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