Weekly Rate & Market Update 12-2-16
Question: What are the new loan limits?
Answer: For the first time since 2006 the Federal Housing Finance Authority (FHFA) which governs Fannie Mae and Freddie Mac has increased the maximum loan limits for conforming loans and FHA has followed the FHFA’s lead and matched the new loan limits.
For single family residences in high-cost counties (Los Angeles and Orange Counties are high-cost, other counties in California may have different limits) the new loan limits are $424,100 (up from $417,000) for conventional mortgages and $636,150 (up from $625,500) for high-balance mortgages. The new loan limits are effective for all loans that fund on or after January 2, 2017.
When the loan limits increased from $359,650 to $417,000 in 2006 there was no “high-balance” category, loans over the conforming loan limit were generically called “jumbo” or “non-conforming.” In 2008, after the housing and mortgage market melt downs, Congress authorized the establishment of the “high-balance” loan limit for high cost areas to support the housing market and assist homeowners who have non-conforming loans by making conforming loans available for possible refinancing.
With home prices having dropped considerably from the establishment of the high-balance loan category the limit was lowered from $729,750 to $625,500 in 2011 where it has remained until it changes in January.
With median home prices having climbed to pre-Recession prices FHFA has returned to historic loan limit models of adjusting the conforming loan limits to keep up with changes in real estate values, hence the first increase in the loan limit in a decade. The lag between loan limit increases is the longest since before 1980, the last time there was no change in loan limits was from 1993 to 1996 when the loan limit was at $203,150.
The increase in loan limits is another sign that the housing markets are healthy across the United States, and have been critical in supporting economic growth for the past several years.
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
A lot of significant data this week, including reports on the overall economy, wages, spending, employment and inflation—all of which impact interest rates. We’ll run through the pertinent reports in chronological order. Tuesday the second estimate of 3rd Quarter GDP was released with a 0.3% upward revision from the first estimate and showing 3.2% annualized growth in the economy from July 1st to September 30th. The increased revision was driven by stronger personal consumption. This news is positive for the economy and negative for lower mortgage rates.
Income up, spending down, prices up. That is the synopsis of the Bureau of Economic Analysis report on personal income and outlays for October. Personal income increased 0.6% for the month, up from 0.3% in September, while personal spending cooled down increasing 0.3% in October after 0.7% in September. Prices were almost unchanged for the month at 0.1% and are up 1.4% year over year, below the Fed’s inflation target. The news is mixed for mortgage rates.
Today the Labor Department released employment data for October. The economy created 178,000 jobs in the month, in line with expectations, however September payroll gains were revised downward from 161,000 to 142,000 jobs created. The headline for tomorrow’s newspapers is that the unemployment rate dropped from 4.9% to 4.6%, the lowest number since August 2007 right before the recession. The drop in the unemployment rate is not good news as it was not a result of more hiring but rather a dip in the participation rate and fewer people looking for work (remember the unemployment rate is not how many people are out of work but is how many people are actively looking for a job, if people give up looking for work the unemployment rate drops), the labor participation rate has dropped to 62.7% (percentage of eligible workforce that is working). Another bit of negative news is a drop of 0.1% in average hourly wages. Overall the report is negative for the economy and positive for mortgage rates.
Rates for Friday December 2, 2016: Good news for rates…they didn’t go up this week! For the first time in three weeks rates don’t go up, they didn’t drop from last Friday but we’ll take the no change after the run we went through. The combination of the election, Fed rate increase and several positive economic signs has resulted in the fastest increase in rates I can remember, going up 0.625% in three weeks. Will we see rates flatten out? Probably (?). Will we see rates settle back down? I feel we should, but then I wrote before the election that if Donald Trump won we should see rates fall.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 4.00% Flat
30 year high-balance conforming 4.125% Flat
30 year FHA 3.25% Flat
30 year FHA high-balance 3.75% Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages.
The lights and decorations are coming out of the attics and garages, which always makes me think of the great movie, Christmas Vacation, when Chevy Chase decorates his home with “250 strands of lights, one hundred individual lights per strand for a grandddd total of 25,000 imported twinkle lights!” And of course they don’t work when he has the grand plugging in ceremony. One of the many joys of this time of year are all the great Christmas movies through the years. Be careful on those ladders.
Have a great week,
Dennis
