A report from the National Association of Home Builders (NAHB) found that a decrease in loan limits for Fannie Mae, Freddie Mac and the Federal Housing Administration set to take effect on Oct. 1 would have a negative impact for the housing market.

According to the report, the lower loan limits would result in a downfall in housing demand and home prices. The report said any home up for sale that the GSEs could not purchase with FHA-insured financings because of the lower loan limits “would require financings with higher mortgage interest rates, higher downpayments and stringent credit history thresholds.”

Bob Nielsen, chairman of the (NAHB), said there would be constraints on home buying in major markets because of the loan limits.

“It is the last thing we need in a housing market that is still struggling to get back on its feet,” Nielsen said.

The base limit for conforming mortgages will remain at $417,000. However, high-cost areas will see a decrease in loan limits, which are based on local median home prices, with the national ceiling dropping from approximately $730,000 to $625,000.

According to the Federal Housing Finance Agency, 204 of the 3,143 counties in the nation will experience a decrease in their high-cost conforming loan limit. These counties have 20.7 million owner-occupied units, representing 27% of the country’s housing market.

The average decline in the loan limit is about $67,000, down 11% from the current value.

There are 3.63 million owner-occupied homes currently priced above the conforming loan limit, according to the report. When the loan limits take effect, an additional 1.38 homeowners will be above the limit and not be eligible for GSE funding.

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