Fannie Mae and Freddie Mac Update Loan Limits as Home Prices Rise
Fannie Mae and Freddie Mac React to Higher Home Prices
Fannie Mae (FNMA) and Freddie Mac (FMCC) will back home loans of nearly $1 million starting next year—a first for the two lenders. The move reflects soaring home prices this year. Fannie and Freddie’s loan limits are updated annually based on average prices for homes across the country.
Under the new formula for 2022, Fannie Mae and Freddie Mac will back loans of up to $650,000 in most areas of the US, and will increase backings to $1 million in regions where homes are more expensive. The changes should help buyers in high-cost areas of the country.
Home Prices Spike 16% Year-Over-Year
The increases to loan limits for 2022 are expected to match the rise in home prices so far this year. In the third quarter, the median price for a single-family home increased 16% year-over-year to $363,700. Low interest rates and individuals’ desire for more space during the pandemic have been reasons for the increase.
Those in support of the changes said that without the increase in loan limits, first-time buyers would be pushed out of markets where starter homes go for $1 million and more. In California, first-time buyers accounted for about 40% of the homes which fetched price tags of $1.25 million to $2 million in 2021.
Some Want Government-Backed Lenders to Take a Step Back
Since the pandemic, Fannie Mae and Freddie Mac’s roles in the US real estate market have grown. Their market share is about 60%, which is up from 42% in 2019. That growing control of the $11 trillion US real estate market is leading some to question what role the government should play. Some argue that if a borrower is buying a home for $1 million, they don’t really need help from the government.
Critics would prefer that the government take a back seat, allowing non-government lenders to issue more of the larger home loans. But with interest rates beginning to move higher and with the real estate market heading into the seasonally slow period, it may turn out that higher loan limits aren’t necessary next year.
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