Benefits of Possible Loan Limit Increase

Conforming Loan Limit Increases in Federal Stimulus Package
The news in recent days about the economic stimulus package that the President and Congressional leaders have been negotiating holds potentially favorable news for some home buyers and homeowners. Any real benefits are subject to the proposed legislation becoming law. Even if that happens it’s not certain when the proposed changes would become effective

Increase in Conforming Loan Limits

The benefit that would most directly affect the real estate markets is an increase in the maximum loan amount that can be purchased by Fannie Mae or Freddie Mac. Loans sold to Fannie or Freddie are called “conforming” loans, as opposed to non- conforming jumbo loans. The best mortgages rates are on loans that are sold to Fannie & Freddie, so an increase in the maximum amount of conforming loans will make better rates available for more borrowers. In this time of turmoil in the mortgage markets, that portion of the market served by Fannie and Freddie are the least effected, and the most “normal” parts of the market. Increasing that portion of the market will help bring an additional measure of stability that has been lacking. Fannie & Freddie are still able to provide 100% financing, when others have discontinued 100% financing

The final provisions in the proposed legislation are still unknown, and the time when the changes will be in effect is uncertain. It’s even uncertain the legislation will be passed, but, at the moment, it appears promising.

Neighborhood Report – Fountain Grove – Santa Rosa
This is the first in a serious of reports on market conditions in specific neighborhoods or areas in Sonoma County. Fountain Grove is a significant neighborhood in Santa Rosa, and has become more so during the past decade with the opening of the Fountain Grove Parkway and the related building of homes along the newly opened corridor. This area is characterized primarily with newer, larger homes built by sub divider/developers and containing mainly of the design characteristics typical of the latest building trends. Many homes are on larger lots, with lots of ¼ to ½ acre fairly typical. Clearly Fountain Grove typifies the upper end of the Santa Rosa market.

The chart nearby contains key market statistics for the past 4 years. Several of the statistical measures are typical of what would be expected of a market that was rising rapidly, then peaked and went into decline. The one measure that appears atypical is the median sale price for homes sold in 2007, which actually increased from the 2006 median.

While the statistics suggest that prices in Fountain Grove are holding steady, my own observation of individual transactions is that prices have declined in Fountain Grove, just like the rest of our local market. It’s possible the statistical aberration reflects a higher mix of very high end homes that skews the median when the sample size is smaller. It’s also possible that because most Fountain Grove homes are quite different from one another that discriminating buyers in this price range will still pay for homes that fit their particular needs or desires. It is true throughout the current market decline that homes in better condition, design and well presented sell better than homes of average appeal.

In any event I would urge caution in adopting the conclusion that Fountain Grove homes have been immune from the market decline. The climbing number of days on the market, declining number of sales and the emergence of a significant number of expired and withdrawn listings supports the conclusion of a declining market for the neighborhood. In addition, I have observed directly a noticeable number of homes in this area that were purchased in the recent past with little or no down payment, that are now for sale, and for which the owners face a serious problem realizing the price they just recently paid.