New Conforming Loan Limits Create Uncertainty in California’s Bay Area

Uncertainty remains high in the Bay Area residential land market following the drop in conforming loan limits to $625,000 from $729,000.

The Bay Area has 72 sub-markets (by Zip Code) where the median home price is now above the new conforming loan limit. What affect this will have on the recovery of the Bay Area housing market is still unknown. Chances are that the compression in loan limits will ultimately correlate to a compression in home prices although not necessarily on a dollar for dollar basis, and the affects could be widely different based on sub-markets.

Currently true “jumbo” loans are priced approximately 100 basis points above “jumbo conforming” loans. Assuming a $626,000 loan and jumbo rate of 5%, a potential home buyer keeping their monthly payment the same will lose approximately $150,000 in buying power.

This phenomenon is most likely to affect the market in the $800,000 – $1 million price point range.  The buyers of these homes would have formerly qualified for a “conforming jumbo” loan if they were putting down at least 20%.  However, they now will need a much larger down payment to stay under the new conforming limits.

At price points above $1 million we would expect there to be a smaller impact, as buyers in that price point have always had to get jumbo loans or put down substantial down payments.

Click the link to see a table outlining the Bay Area sub-markets by zip code with median prices above $625,000: http://www.dqnews.com/Charts/Monthly-Charts/SF-Chronicle-Charts/ZIPSFC.aspx

Source: Steve Reilly, Marketing Consultant, (925) 368-3128

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