Increases in the Conforming Loan and FHA Loan Limits?

With the drive for an domestic economic stimulus package open at full throttle, it appears there will be increases in both the Fannie Mae/Freddie Mac-backed conforming loan limits, set currently for single family residences at $417,000 and the FHA limit, to be increased from its currently locked ceiling of $362,790 to a recalculation of 125% of the country's median price with a new limit set at $729,000. There is an expectation the latter increase will be permanent whereas the conventional loan limit is likely to remain in effect throughout this year only, terminating on December 31^st.

For homeowners intent on refinancing, and buyers alike, these revisions may represent significant savings on mortgage payments. Seattle's median home price today is approximately $435,000. Accordingly, a buyer looking to secure a loan with no downpayment would default automatically to the higher jumbo loan interest rates. Under the new guidelines, he would be able to avail of conventional financing. Refinancers who have purchased their homes either under present jumbo loan circumstances or having combined a conventional first mortgage with popular, but more expensive home equity lines of credit or comparable second mortgages will have an opportunity to combine loans into a new, lower conforming rate.

Will these measures spur the economy? I believe so. Will they address the deeper, underlying issues of low consumer confidence, high international debt and our ever burgeoning trade deficit? Perhaps the next administration will have an answer for that question. In any event, higher loan limit thresholds are certain to inspire buyers to consider acquiring more home than they may have planned before, especially in high median priced markets across the country. Unfortunately, for the typical first time home buyer whose pocket power is well below these limits, the advantages remain negligible.

On other fronts, Microsoft bucked industry trends by reporting higher-than-expected 2007 fourth quarter earnings, unlike other major technology companies including Apple, Intel and Motorola, all recently issuing forecasts falling short of Wall Street expectations.  While it's possible Microsoft's earnings will soften in the first quarter of 2008 as recession spending catches up with their bookkeeping, indications are that consumers continue to invest in technology and that the technology behemoth's future remains bright.

This region's housing market remains robust with a modest (relative to recent years) Seattle area 7% housing price gain in 2007.