The federal government has decided to raise the limit on mortgages it secures to just over $1 million, a move that will give Bay Area home buyers a measure of relief from rising interest rates.
Starting next year, Freddie Mac and Fannie Mae will back private loans issued in the Bay Area up to a record $1,089,300 — the current limit is $970,800 — the Federal Housing Finance Agency announced Tuesday.
Home buyers who receive loans from banks or other lenders that are backed by Freddie and Fannie must have good credit and meet other guidelines for safety and security. The loans generally have lower interest rates than loans that exceed the limit set by the government.
Currently, the average rate on a 30-year loan is about 6.6% nationwide, according to Freddie Mac. The rate on a loan that exceeds the limit and is not secured by the government, currently any loan above $970,800 in the Bay Area, is an average of 6.9%, according to Bankrate.com.
Matt Regan, a housing policy expert with Bay Area Council, said the loan limit increase could be good news for those looking to buy at the lower end of the local housing market. But since the Bay Area’s median home price is an astronomical $1.2 million, the increased cap won’t make a significant difference for many buyers.
“Any assistance that can be given to make ownership more available is welcome, but it has to be put in perspective,” Regan said.
In recent years, home ownership has only been pushed further out of reach of many Bay Area residents as home prices soared to record highs amid a pandemic housing boom. Median home prices are up around 30% from pre-pandemic levels for much of the region, according to data from the California Association of Realtors.
Home prices have fallen in the second half of this year, but that’s largely because rising interest rates have squeezed many buyers out of the market. The higher rates — now more than double the historic lows of around 3% during the middle of the pandemic — can mean monthly mortgage payments that are thousands of dollars more expensive.
Regan said the region’s high home costs are a direct result of its failure to build enough housing to accommodate economic and population growth in recent decades.
He added it’s fair to question whether raising the federally secured loan limit to include pricier home purchases makes sense when the federal government could instead be focusing on policies to create more housing that people of all incomes can afford.
“Because the market is so out of whack, we’re now at the ridiculous point of trying to help people buy million-dollar homes,” he said.
