To keep up with the significant rise in U.S. home prices, the federal government has announced plans to raise the limit on high-end mortgages that it will back.
- In 2023, the new limit for backing mortgages of single-family homes in high cost of living areas will now be $1,089,300.
- This year, the limit for the backing of loans obtained through Fannie Mae or Freddie Mac was set at $970,800.
- Most U.S. residents will only qualify for a limit of $726,200—that limit is an increase from $647,200 this year.
Why it’s news
Since the pandemic, the U.S. housing market has seen massive fluctuations from a booming, hot market where homes regularly sold above asking price to the current conditions where high-end homes are slow to move.
The urgency of the housing market has slowed, but prices remain high. Mortgage rates are above 7%, making buyers hesitant to make a commitment.
Fannie Mae and Freddie Mac are federally backed mortgage companies that offer guarantees to banks and mortgage companies—allowing for a more secure and stable housing market. The federal government gained control of the companies after the 2008 financial crisis.
In order to have funding to properly back these mortgages, Fannie Mae and Freddie Mac buy mortgages from lenders, group them together in securities, and sell the securities to investors.
Increased backing may make it easier for some buyers to secure a home, but the increased rates may renew disagreements over how much backing the government should provide.
Backing up a bit
Despite home prices increasing dramatically over the last two years, average incomes have hardly budged.
The average income needed to buy a house in some cities has nearly doubled—but the actual income has stayed about the same.
According to the Census Bureau, median household income was $70,784 in 2021, a slight drop from 2020 when it was $71,186.
For the seventh month, pending home sales dropped, reaching the lowest levels since 2011, as fewer potential home buyers are able to make a purchase.
what some argue
The idea is to save homeowners who get in trouble, but not everyone thinks it’s a good ideas. “Now the administration is turning a government-backed mortgage into an entitlement for the affluent in coastal areas where zoning regulations drive up prices,” writers the Wall Street Journal editorial board. “The more the government intervenes in the housing market, the more damage it does.”