Mortgages: A subsidy for million-dollar homes?
A coming increase in Fannie Mae and Freddie Mac loan limits could make America’s most expensive housing markets even hotter, said Andrew Ackerman in The Wall Street Journal. “The maximum size of home-mortgage loans eligible for backing by Fannie and Freddie are expected to jump sharply in 2022,” to a baseline of about $650,000 in most regions (up from $548,000). In the priciest regions, such as parts of California, New York, and Massachusetts, the new loan limits will stretch to nearly $1 million. Fannie and Freddie “guarantee about half of the $11 trillion mortgage market”; loans that exceed their limit, so-called jumbo mortgages, tend “to be more expensive for borrowers to obtain.” But the sharp increase in prices has thrown many ordinary buyers into the jumbo category. Clients who need bigger mortgages now are not “looking for a castle, just a three-bedroom house with a backyard,” says one Scottsdale, Ariz., mortgage broker.
The changes could end up hurting the buyers that Fannie is purporting to help, said V.L. Hendrickson in Barron’s. We are in a historic supply crunch, and adding more buyers to the pool of those eligible for conventional loans will increase demand and “likely result in more competition and higher prices.” A $1 million backstop is great news if you’re looking to buy on Nantucket, said The Wall Street Journal in an editorial. They are essentially “subsidizing affluent Americans who don’t need the help.” This will prop up demand for high-end homes, keeping prices elevated for overstretched buyers. If this sounds familiar, it should: “in the 2000s, federal loan subsidies and low interest rates fed a housing mania that ended in panic and a crash.”
The Biden administration doesn’t seem to know what to do about housing inflation, said Jerusalem Demsas in Vox .com. The Build Back Better bill includes “investments in housing,” but much of the money is going toward rent and homeownership subsidies, not new construction. That could actually “put upward pressure on prices” if more affordable homes don’t get built. Meanwhile, Biden recently touted “home values are up” as evidence of an economic recovery “The government can’t decide whether it’s interested in bringing down the price of homes or increasing it.”
For prospective homebuyers, fatigue and frustration are setting in, said Swapna Ramaswamy in USA Today. Nish and Niyati Shah, who live in a townhome in Old Bridge, N.J., have lost multiple bids, including an offer of $1.75 million for a home listed at $1.675 million. The house eventually sold for $150,000 above the asking price. “I keep asking myself, ‘Should we wait until this bubble bursts?’” Nish Shah said. He finally stopped looking aggressively in August, because there seems no end in sight.