The new GSE conforming balance limit - to be announced next month - is expected to rise substantially, possibly experiencing the biggest year-over-year percentage increase ever, according to Countrywide Securities.
The limits, based on October-over-October changes in the Federal Finance Board's average home sale price, is expected to increase up to 16% from last year's single family limit of $359,650, raising the number to $417,000. The previous record rise was in 1986, when the single-family limit rose 15,6%. Even if the average price for October 2005 declines from September's $307,100, Countrywide analysts still expect the limit to be over $410,000.
The report points out two potential factors that could derail analysts' projections. The first is if the average home sales price for October declines more than expected from September's prices, a distinct possibility with recent softening home price accounts. For this to occur, the average reported price from September to October would have to drop 4% to roughly $294,000. There is also the possibility that the GSEs choose to increase the limit less than the maximum amount allowed, although this would be contrary to past behavior. "We don't expect them to set a precedent this year, especially in light of proposed legislation that would allow the limit to be increased in high-cost areas," Countrywide analysts noted.
Raising the single-family conforming limit to the fully allowable amount would have implications for government backed loans as well. The FHA limit is technically 95% of an area's median home price, with an 87% ceiling and a 48% floor of the GSE's national limit. A $417,000 conforming limit would suggest a ceiling of about $362,000 for FHA loans in high-cost areas (up from $312,895) and a minimum of about $200,000 (rising from $172,632) Meanwhile, the Department of Veterans Affairs loan limit was last changed to $300,700 in 2002, and will eventually have to be increased to keep pace with U.S. home prices, according to Countrywide.
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