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Luxury real estate market will take a major hit on October 1st

Will there be a miracle for the market?

Unless there is an unlikely miracle on Capitol Hill, the luxury real estate market is about to take a major hit as conforming mortgage loans backed by the government under Fannie Mae, Freddie Mack and Federal Housing Administration (FHA) are about to go back to nearly 2008 limits which were substantially lower. In 2008, the conforming loan limit was raised for government backed loans from $417,000 to $729,750 as a temporary measure to supplement a struggling housing sector.

On October 1, 2011, just days from now, the limits will drop across the board. Some areas will drop to $483,000 (parts of CA) while others will lower yet remain high at $625,500 (NY). This move will instantly make 1.4 million homes ineligible for lower-rate conforming loans, according to the National Association of Home Builders (NAHB).

Over one million homeowners impacted

Those 1.4 million homeowners who are in the market to buy or refinance will have to take out jumbo loans with higher interest rates and down payments which could curb market enthusiasm for buying luxury listings. When luxury listings take a hit, so does the rest of the market as housing prices are often pressured from the top down.

“Reducing the conforming loan limits will test whether private lenders are willing and able to step up, but doing so this year may be premature,” says Mark Zandi, chief economist at Moody’s Analytics tells CNN. “The cost to the housing market and economy of a misjudgment would be high.”

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Some believe President Obama will surprise America with another speech proposing sweeping changes to housing, but given the President’s focus elsewhere as we recently reported, it is our assertion that the likelihood of anything beyond attempting to help current homeowners refinance at today’s low interest rates is extremely unlikely.

Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

4 Comments

4 Comments

  1. Brandon

    September 21, 2011 at 11:22 am

    The President did mention real estate in his jobs speech. I hope the government takes Realtors into consideration this fall as a whole.

  2. Grant in Nashville

    September 22, 2011 at 11:06 am

    It does appear that it will be tough sledding for a while in the luxury markets, but with lower interest rates, the middle class has huge buying power.

  3. Matt Fuller, GRI

    September 23, 2011 at 11:44 am

    Tara,

    Hey there – thanks for the article. I did an analysis of the SF market (where prices are high, even for non-luxury homes) and found that the changes impact only about 10% of buyers.

    jacksonfuller.com/2011/05/19/how-will-changes-to-jumbo-conforming-loan-amounts-impact-sf/

    We've had a bunch of portfolio lenders step up to fill the gap, so the impact hasn't been as dire as has been predicted. I'm not sure what role portfolio lenders play in other areas, but so far in SF the effect hasn't been crushing.

    Cheers,
    Matt

  4. Ruthmarie

    September 23, 2011 at 7:53 pm

    Those in the high end market in my area are doing so well financially, and with interest rates that are really ridiculously low – there will be an impact – but I can't imagine that it will be really large.

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