Congress Considers Increasing Conforming Loan Limits

According to a January 11th article by New York Times reporter Bob Tedeschi, if you are looking at buying real estate in a traditionally high-priced area of the United States, it might make sense to wait a few weeks before making your move. Some members of Congress are reportedly urging Barack Obama to include a clause in the pending $800 billion economic stimulus package which would raise the dollar limit on “conforming loans.”

“Conforming loans” are the mortgage loans available for purchase (and backing) by Fannie Mae and Freddie Mac, the two infamous quasi-governmental agencies that were so much a part of this past year’s financial meltdown. Currently the limit on conforming loans (as of January 1, 2009) is $625,500.

Conforming loans have consistently lower interest rates and are easier to qualify for than non-conforming loa. If Congress decides to raise the conforming loan  limit as part of the new stimulus package, it could make it easier for buyers in high-price areas of the U.S. like New York City and California to purchase homes by making the underwriting process less stringent and the terms more favorable.

From a foreign investment standpoint, such a move could result in an appreciation of real estate values in pricier parts of the country, especially if the change results in an increase in sales to individual homeowners as opposed to real estate speculators. That would mean that, for a foreign investor with out of the country financing or personal funding, getting in ahead of the curve in these markets could result in a quicker return than one might otherwise expect.

On the down side, New York City has lost millions of jobs with the meltdown of Wall Street and the financial services sector, and while NYC is still a hot market, if fewer people have jobs there, there will be fewer reasons to buy property there. It won’t matter what kind of favorable mortgage terms are available until a more thorough economic recovery is under way.

Real estate investment in the U.S. is likely to be a gamble for the near and long term, but watching what happens with Congress and the mortgage markets can help a foreign investor get a heads up on where the next best buy might be. For more information on developing trends in the U.S. real estate market, check out our own article United States Real Estate Prospects for 2009.