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If you're just here for the conforming loan limit news, $766,550 is the number for 2024. Does this mean no one can get a mortgage for more than $766,550? No. The conforming loan limit is the maximum amount that can be guaranteed by Fannie Mae and Freddie Mac (the government-sponsored enterprises or GSEs). That guarantee has advantages in terms of the loan approval process and interest rates. There are plenty of mortgage options for higher amounts or that are not guaranteed by the GSEs, but conforming loans account for a vast majority of new mortgages. $766,550 is the base amount. Higher cost areas have access to higher limits based on the average home prices in that area. The county by county limits are listed separately, HERE. The highest tier is $1,149,825 (base loan limit x 1.5). Where do these numbers come from? The Federal Housing Finance Agency (FHFA) is the regulator of the GSEs. It publishes various home price data. Once the data is in for the 3rd quarter (typically by late November), it is compared to the 3rd quarter of the previous year and home prices are adjusted by the corresponding amount. In situations where home prices fall, the limit does not fall, but it will not rise again until home prices move back above the levels associated with the previous limit. For instance, let's imagine the loan limit was $700k, but prices fell enough to drop it to $600k. The limit would remain at $700k year after year (even if prices were rising) until prices got back above $700k.
Today brings the release of the two main home price indices (HPIs) for the month of September (yeah, there's a bit of a lag). The S&P Case Shiller HPI rose to prominence in the run up to the financial crisis (back then it was just Case Shiller), and has been a mainstay of home price tracking ever since. While there is a national version of the data, Case Shiller's more popular HPI focuses on the 20 largest metro areas. The 20 city index is understandably more volatile (smaller sample size = more volatility), but some would say more indicative of what the average American is seeing. The Federal Housing Finance Agency (FHFA) oversees Fannie and Freddie, the enterprises that set conforming mortgage guidelines and guarantee a vast majority of mortgage debt. The FHFA also publishes the nation's broadest HPI. It's notably less volatile than Case Shiller, but both tend to be moving in the same direction at any given time. In the current release, for instance, Case Shiller reported a 0.2% increase in prices month-over-month whereas FHFA saw a 0.6% increase. Both numbers are 0.1% below last month's revised reading. Year-over-year numbers help put the trends in perspective. In not so many words, prices are leveling off in moderately stronger territory after early 2023's shift. That shift was "deceleration" according to FHFA and outright "contraction" according to Case Shiller's several months spent in negative territory.
The Census Bureau released the monthly New Home Sales report today, showing a decrease from 719k in September (revised down from 759k initially reported) to 679k in October. While this number is below the long term trend that emerged after the Great Financial Crisis, it's still in league with the pre-covid highs. The post-covid story for the housing market has been one of ever-dwindling inventory and its various effects. One of the most obvious effects of lower EXISTING home inventory is that NEW homes have captured a larger share of the market. Existing homes have moved lower, almost exclusively from the peak. The divergence from New Home Sales has been especially notable since mid-2022 when rates really began skyrocketing. The following chart shows the percent change in both new and existing sales from the peak. Perhaps most notable is the price trend during the time when sales were down more than 40%. An inventory crunch is the only thing that could explain the juxtaposition of a sharp decline in sales and a sharp increase in values, but it's important to note the 3rd ingredient in play during the highlighted time frame above: incredibly low rates. Prices stopped accelerating almost as soon as rates began to jump. What's the takeaway for the housing market? Today's report doesn't tell us much. Anything in the 650-750k range is fairly neutral. Additionally, the outlook may be rapidly changing to whatever extent the highest interest rates are behind us. That's a possibility that will receive more clarity with next week's economic data, but it will take several months to confirm.