The stories were bleak. Families owing more than their homes were worth; foreclosure signs on lawns becoming a common sight. In response to the subprime mortgage crisis that busted the real estate bubble back in 2008, the government passed legislation to get the housing industry moving again--but some of that legislation is set to expire soon.
As always, New York City is positioned to be an exception, and the wrinkle of impending national policy affecting the size of government insured-loans will have a disproportionate impact on buyers looking at apartments for sale in Manhattan and in other high-cost metropolitan areas.
With the government-loan limit to be reduced by around $100,000 as of October 1st, hundreds of real-estate buyers from the suburbs and city will be forced to either come up with a larger down payment, or face the prospect of signing “jumbo” loans at the real estate table. An appraisal reported in New York Times reports that the new limit would affect about 7 percent of transactions in Manhattan.
The government-insured FHA loans are popular because of their typically smaller down payments and negotiable accommodations. Until recently FHA had a conforming loan ceiling of $729,750. When they lower the limit to $625,500 in October, FHA-approved home buyers wanting loans over $625,000 will not have satisfied the Freddie Mac guidelines, and will be forced to go to bigger banks that can underwrite the “jumbo” loans. The so-called “jumbo” loan typically requires at least 20% down and a credit score of 720 or more.
With more areas in the Manhattan housing market thriving despite the economic crisis, and raising prices of apartments for sale in popular neighborhoods like Chelsea and Greenwich Village, HUD's peculiar new policy might not be the move to spur the NYC real estate market market forward. Higher prices and lower loan limits may drive buyers to hesitate on sealing the deal on a new apartment. As the president of a real estate company told the NYT, “Considering the housing market still needs a push it’s a bad time to lower the limit now.”
But all is not gloom and doom. Expect to see a rush of paper-pushing from those caught in the loan snag, as they hope to close deals before fall turns into winter and the full affects of the new loan limit are felt. We’ll keep an eye on the potential changes to the market when the new loan rate hits, but lower conforming loans probably won’t dissuade condo and co-op seekers from moving to the city. For those hoping to buy Manhattan apartments, more finance planning on behalf of the buyer will ease whatever affects the new loan limit will have, and it is unlikely that those hoping to buy an apartment will be hugely affected by the loan limits. The current strength of the Manhattan market will probably continue regardless of the changes in housing loans -- at least, until winter comes.