How Will Changes to Jumbo Conforming Loan Amounts Impact SF?

This article is a slightly revised version of something I originally wrote for Technorati.

The folks at On the Block from the SF Chron lead with “Should we be punished for living in an expensive area?” while Socketsite takes the factual approach with “Super Conforming Limits In San Francisco Set To Expire September 30.” The NY Times does what they can to terrify us all with their article that kind of implies that the real-estate-world-as-we-know-it ends September 30. What’s the drama? Beginning October 1, Uncle Sam is decreasing the size of mortgages that they will insure. These mortgages are known as conforming loans, and it is generally easier to qualify for one and they also usually offer a lower interest rate. 

The value on these conforming loans in high-value areas was increased as part of the 2008 Economic Stimulus package to the lesser of either $729,750 or 125% of median home value within a given MSA (metropolitan statistical area). Here in San Francisco, our “jumbo-conforming” loan limit was $729,750.

On October 1, 2011 – pending any legislative miracle – the amounts fall back to what they were before the one-time boost, which for San Francisco means we will fall back to a conforming loan amount of $625,500. This is still well above the conforming loan limit amount of $417,000 for most of the rest of America.

The NY Times article uses a nearby area (Monterey, CA) that is a mix of inexpensive rural farmland juxtaposed against high-value coastal resort communities. So the expensive coastal areas in Monterey will be disproportionately impacted because their MSA includes an area with a lot of inexpensive real estate. Curious about how this change will play out in San Francisco, I turned to the San Francisco county tax records.

I pulled data from the county tax records for all of the recorded sales between January 1, 2010 and the end of March, 2011 (the most current data I could access with both sales and mortgage amounts). There were 1,964 properties with both the sales price and mortgage amount available in the public record. While this is far from the total of what was reported since the beginning of 2010, I think it is a large enough data set to still provide valuable insight.

Mortgage Loans Issued Since the Beginning of 2010

As you can see from the above chart, in the past 15 months, only 12% of loans made in San Francisco were between the regular (high value) conforming loan amount of $625,500 and the “jumbo” conforming loan value of $729,750. Put another way, 88% of the loans issued in San Francisco over the past 15 months could care less about the upcoming change to conforming high value loan limits.

Don’t get me wrong, I’m not thrilled with the end of the jumbo conforming loan, and certainly don’t think that its demise will help with the real estate recovery. That said, I also think it is important to not panic simply because a loan product that was in use by about 10% of the market will be going away. And I really don’t think anyone is “out to get” those of us who can afford to own a home in San Francisco.

All that being said, if you are thinking of buying a home soon and are a part of that 12% that will be affected by the change in conforming loan limits (ask your mortgage broker if you aren’t sure or don’t know), then you’ve got some serious motivation to find your new home and close the deal before the summer ends. Otherwise, you should take the latest hysteria about the real estate market with a jumbo grain of salt.

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