Home Building's Welfare State image

During last week's days to celebrate gratitude, housing and many new home builders got a little gift from powers that be in Washington, D.C.

A not-unexpected lift came from the Federal Housing Finance Agency in the form of a higher lid on conforming loan limits that its wards, Fannie Mae and Freddie Mac, can buy from bank mortgage lenders starting in 2017.

The baseline conforming loan moved up from $417,000 to $424,100, a 1.7% increase that triggered as a result of an FHFA house price index increase of the same amount relative to the index in the third quarter of 2007, a pre-downturn high-water mark.

In higher-cost areas, where 115% of local home values exceed the baseline loan limit, the new conforming loan cap is $636,150 for a single-family unit, up from $625,500.

In California counties like Los Angeles, Marin, Napa, and Orange counties, the new loan limit may come as a bit of a salve for home builders, who--due to land use costs, fees, and permitting delays--couldn't pencil building profitably at lower price points that would fit conforming loan limits.

Now, in some parts of those counties, a builder may be able to build, for example, an entry-level premium community, make money on it, and sell to a buyer who can qualify for a mortgage that Fannie or Freddie can acquire as a conforming loan.

Of course, that still doesn't account for solving intra-county disparities where much of the new construction is in higher-cost sections of a county that does not meet the FHFA baseline of 115% of county home values over $424,100. So, the lid is not entirely off, and the limits will still work as a constraint on what builders can build profitably and what buyers can finance with conforming loans.

Still, in a sense, the triggered increase in FHFA conforming loan limits signals that housing, in important respects, has come full-circle from the depths of the downturn, progress to be grateful for.

Of course in many geographies, housing still has a long way to go before it comes back to normal. To some extent, that distance may be measured by how difficult it is for a 34-to-36 year-old couple to break free of renting and take part in the American Dream of homeownership.