Saturday, April 23, 2011

FHA Limits Change October 1

There is another storm cloud approaching for the United States housing market.  On October 1, 2011 the extremely relaxed lending guidelines for the FHA, Fannie Mae, and Freddie Mac will begin tightening.

These three monsters are now responsible for providing over 97% of the new mortgages created in the US.

In higher priced cities the maximum loan amount for Fannie Mae and Freddie Mac jumbo loans will fall from $729,750 to $625,500.

In lower priced markets that are currently dominated by FHA insured loans, the maximum limits will also be falling.  For example, in Minneapolis the FHA loan limit will fall from $365,000 to around $275,000.

For information on your area's loan limits click here.

What does this mean?

If you want to purchase a home in a comparable city to Minneapolis today for $465,000 you would have to pay a down payment of $100,000.

($465,000 purchase price) - ($100,000 down) = ($365,000 mortgage FHA limit)

On October 1 you will have to put down $190,000.

($465,000 purchase price) - ($100,000 down) = ($275,000 mortgage New FHA limit)

There are less people in the real estate market that have the ability to put down $190,000 vs. those that have the ability to put down just $100,000.

This means a lower supply of buyers (lower demand) on the market.

This lower demand will coincide with a surging supply of homes as shadow inventory continues to enter the market.

(Lower demand) + (Higher supply of homes) = (Home price declines)

Unless.........the government steps in to relax lending standards further as prices once again begin to plunge.  This is a very likely scenario under our now communist regime.

As the United States continues to provide 97% (or more) of the mortgages to home buyers who cannot afford them at these prices, the government will continue to take massive loan losses, which in turn will be paid for with higher budget deficits.  Higher deficits will reduce the demand for US dollars from both foreign and domestic investors.  In addition, the Federal Reserve will have to increase the money supply to fill the void.  Let's take another look at the updated economics cause and effect example:

(Less demand for US dollars) + (Higher supply of US dollars) = (Lower Value for US dollar)

Cause and effect. 

Then one step further:

(Lower Dollar Value) = (Higher Gold and Silver Priced In Dollars)

No matter what the government does in terms of trying to artificially keep home prices above the free market clearing level (which would occur if they no longer provided mortgages), real estate priced in gold and silver will continue to fall.

While it is tragic to watch what they are doing to our country, those holding precious metals will soon have the opportunity to purchase real estate at rock bottom prices during the final mania stage of this secular bull market.

**A word of caution: Silver is now up 170% since August of last year.  Understand that a massive pull back is not only possible but likely.  Those that have owned the metal for over 8 months, congratulations on your patience.**

2 comments:

  1. Whether you're buying your FHA Loans VA Loans first home or moving up to a bigger one, the basic steps in the purchase process are the same.Fannie Mae Home Our Purchase Service guides you throughHome Loan Grants this process, ensuring that you are Ill-prepared andBest Wisconsin Mortgage Broker receiving great advice every step of the way.

    ReplyDelete