With rising home prices pushing more loans out of conforming range and into jumbo range, could the jumbo loan cap increase?
With the national median home price at a historic high, the Federal Housing Finance Agency has begun to reach out for public opinion on its house price index, which may affect the baseline jumbo loan threshold.
The jumbo loan threshold, which was set as low as $33,000 in the early 1970s, has been steadily rising to keep up with home prices. Currently, the baseline cap in most of America is $417,000. However, states such as Hawaii and Alaska, and cities such as San Francisco and New York, receive a higher limit of up to $625,500 due to the high cost of living in those locations.
In 2008, the upper limit on jumbo loans was raised to $729,750. This was changed to encourage consumers to buy homes during the economic downturn. In 2011, the FHFA dropped the upper limit back to $620,500. In pricier markets, this forced more consumers to consider jumbo financing, which brings with it higher interest rates and higher requirements due to the lack of government backing. Some analysts argued that lowering the limits led to some consumers deciding against buying a home. Raising the conforming limits, others argue, will allow consumers to reconsider making a big home purchase.
Rising Prices Make Jumbo Loans More Common
Many areas have seen rapid increases in the number of jumbo loans issued since 2012. For example, Chicago saw a 42.2 percent change from 4.5 percent of loans being jumbo loans in 2012 to 6.4 percent in 2015. That was a higher rate of change than New York, which saw a 36.6 percent increase, although Chicago still has fewer jumbo loans in total than New York, where the jumbo share went from 7.1 percent in 2012 to 9.7 percent in 2015.
Neither of those cities comes close to San Francisco. With the same cap as New York, San Francisco saw a change from 17.6 percent to a staggering 38.2 percent, for a 116.6 percent change. While other areas in Calif. saw increases of up to 151.3 percent, San Francisco is both at the max conforming loan limit and has the highest level of jumbo loans in the nation. Los Angeles had the second highest jumbo loan rate, with 21.3 percent of all loans being jumbo loans.