How much will the Fannie & Freddie qualifying loan limit increase in 2023?

in Estimated risk per 08/03/2022 11:54:00

Today in the Calculated Risk Real Estate newsletter: How much will the Fannie & Freddie qualifying loan limit increase in 2023?

An excerpt from the letter:

With home prices soaring again over the past year, an interesting question arises: How much will Fannie & Freddie’s (CLL) qualifying credit limits increase in 2023? And how much will FHA insured loan limits increase?

First, there are different credit limits for different geographic regions. There are also different credit limits depending on the number of units (from 1 to 4 units). For example, the current CLL is $647,200 for single-family homes in low-cost areas. For Los Angeles County, the CLL is $970,800 for single family homes (50% higher than the CLL baseline).

This graph shows CLL since 1979. CLL has not changed from 2006 to 2016.

Appropriate credit limitThe adjustment is based on the value of the house price index in the third quarter divided by the third quarter of the previous year. The FHFA index is a repeat sales index similar to the Case-Schiller index.

We currently only have data for Q1 2022 for the quarterly index (up 17.5% over Q1 2021) and the buy-only index up 18.3% through May 2022.

We need house price data up to September 2022 to calculate the appropriate credit limit for 2023. These quarterly data will be published at the end of November.

Based on the current year-on-year change in house prices, CLL could approach $760,000 in 2023. However, year-on-year house price growth is clearly slowing down, and it is possible that CLL will be in the low-to-mid $700k range for 2023.

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