Home builders are running into difficulties when they aim to price their homes below FHA loan limits.

During the post-recession period, the U.S. Department of Housing and Urban Development set lower limits for Federal Housing Administration loans in certain markets based on local median home prices, an effort to keep their loans affordable for home buyers. But, in higher-cost markets such as the Inland Empire, builders looking to target first-time buyers say that these limits are impossible to meet.

Loan limits in California’s Riverside and San Bernardino counties dropped from $500,000 in 2013 to about $355,000—a nearly 30% decline overnight. In Clark County, Nev., home to Las Vegas, loan limits fell from $400,000 to $287,000.

New home sales in the Inland Empire plummeted by more than 30% in the first half of 2014 from the same period a year earlier, according to housing data firm Meyers Research, while sales in the Las Vegas area fell by more than 45%.

Brookfield Residential has responded to this limit by working with the Inland Empire city of Ontario, Calif. to develop a higher-density community 189 townhomes, all priced below $378,000. “So far, the moderately priced homes have sold at nearly twice the rate of others listed above the $378,000 mark,” says Chris Kirkham of the Wall Street Journal.
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