The Federal Housing Finance Agency (FHFA) announced on November 24, 2020 that the maximum baseline conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac in 2021 will increase to $548,250 from $510,400.
The loan limit will rise 7.42% in 2021 because FHFA has determined that the average U.S. home value increased by that amount between the third quarters of 2019 and 2020.
Higher loan limits will be in effect in higher-cost areas as well. The new ceiling loan limit in high-cost markets will be $822,375. The previous ceiling was $765,600.
What does this mean for homebuyers?
The increase keeps homebuyers in step with a more expensive housing market by allowing them to borrow more to the limit of what is called a “Conforming Loan”. With conforming loans, buyers can purchase homes with lower down payments and more competitive rates.
According to the National Association of Realtors, sales of existing homes in October soared to 4.3% compared with September, as well as a 26.6% annual increase to an adjusted rate of 6.85 million units.
NAR’s Chief Economist, Lawrence Yun, called this “a spectacular gain”. To him, the surge in sales in recent months had offset the spring market losses. And with the news of having a COVID-19 vaccine will soon be available, and with mortgage rates projected to hover around 3% in 2021, he expects the market’s growth to continue into 2021. Yun forecasts existing home sales to rise by 10% to 6M in 2021.
Based on the report, there were 1.42 million existing homes on the market at the end of October, a 19.8% drop compared with October 2019. At the current sales pace, the data represents a 2.5-month supply, the lowest on record.
NAR also said that the median price of an existing home sold in October was $313,000, up 15.5% annually. That is the highest median price on record and reflects the far stronger sales on the higher end of the market.
Danielle Hale, Chief Economist at realtor.com, mentioned that while the rising coronavirus cases could dampen sales, mortgage rates could tick up in the months ahead and test the strength of this seemingly unstoppable housing market.
On another note, investors continue to be strong in the market. The severe shortage of existing homes for sale has been incredibly beneficial for the nation’s homebuilders, who have seen very strong demand. Mortgage applications to purchase newly-built homes were up nearly 33% annually in October, according to the Mortgage Bankers Association.
Bend, Oregon is the epitome of COVID-19 accelerated real estate sales. After only a few weeks’ pause in March from new restrictions, out of town buyers doubled down on Bend as the perfect escape from their respective cities. After evaluating the quality of life and relatively lower cost of living in Bend compared to our feeder markets like the Bay Area and Orange County/ LA, for example, Buyers have been even quicker to move here in the second half of 2020 than in past years. Why Bend? Buyers are choosing Bend over other markets for many reasons, including the year-round outdoor lifestyle (skiing, hiking, mountain biking, kayaking on the rivers & mountain lakes, golf, horseback riding & more), easy direct flights to West coast markets for ease of visiting clients and friends & family, luxury amenities with a laid back lifestyle, and an overall better quality of life. Bend is the perfect escape from restrictive or chaotic worlds.
COVID-19 set the precedent for working from home, so people started asking themselves, why not work from home in another city? It’s now common for lenders to ask for written proof from Buyer’s employers that the Buyers can indeed work from home in Bend. Contingent purchases are more commonplace as Buyers are willing to put their homes on the market the minute they write an offer on a home in Bend, but even more so cash offers are dominating our sales. Bend has recently been named by WalletHub as the second-fastest growing city in the nation, with COVID-19 clearly a contributing factor.
Examples showing the accelerated growth in Bend since COVID-19 based on sale prices and days on the market (DOM) abound. One of my listings in a desirable neighborhood sold for $905,000 in April, 2020 after 171 days on the market with 2 price reductions. A home on the same street with almost identical specs is currently pending in just 10 days. Listings at all price points have yielded multiple offers – as many as 22! – and are selling for up to $200,000 over asking price which is a new phenomenon in our market since COVID-19.
This graph depicts a sharp increase in median price in 2020 compared to past years during June through September across multiple years. From just the same period a year ago, we saw a 2% decrease in median price in 2019 compared to an 18% increase in 2020. We will continue to be in a strong Seller’s market until new inventory can catch up with demand, but since most people don’t want to leave Bend we’ll rely on new construction to fill the gap.