Conforming Loan Limits Rise and Support Already Elevated Housing Demand in 2024 - 12.7.23

by Ryan Schoen , Sr. Insight Analyst

Quick Hit

FHFA announced last week that they will raise the maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac by 5.56% in 2024. This development adds further support for housing demand that should improve access to homeownership in the year ahead while supporting home price appreciation.

Key Points and Stats

1. FHFA will increase its new maximum baseline for 1-unit properties to $766,550 (+$40,350 Y/Y) for most of the country and to $1,149,825 (+$60,525 Y/Y), which equates to 150% of the baseline limit, in areas designated as high-cost.

Housing Market Supply Indicators:

2. New listings continue to remain suppressed and maintain levels that are lower than what we observed from 2017 to 2021. However, we have started to see a slight improvement from 2022 levels with 54.4% of the 800+ metro areas analyzed seeing new listings higher than this time last year.

3. Active listings have essentially been flat throughout 2023 and have not returned to the typical seasonal pattern that we would expect, indicating continued abnormality in the housing market as any new listings do not last long enough to boost the number of houses available for sale. In just 47.4% of the 800+ metro areas analyzed active listings were higher than this time last year.

Housing Market Demand Indicators:

4. Median days on market have continued to pace below last year over the back half of 2023 confirming the relationship between new listings not lasting long enough to boost active listings with homes remaining on the market for just under 35 days. Less than half of markets saw an increase in median days on market compared to last year at just 45.1%.

5. Two in three homes are off the market within two weeks. Yet another metric confirming eager buyers awaiting new listings that hit the market even during this typically slow time of the year.

6. For homebuyers that are willing and able to secure a home, 27.3% paid above list price showcasing continued competition in the market despite a deterioration in overall home affordability for homebuyers.

7. Following a similar trend to the share of homes sold above list price, home sellers continue to see their homes sold for close to what they are asking at a 98.8% average sale-to-list price ratio.

Housing Market Supply and Demand Indicators:

8. The result of the supply and demand indicator imbalances above showcases why home prices continue to remain elevated nationally and have increased in approximately two-thirds of markets across the country.

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Conforming Loan Limits Will Rise in 2024

The Federal Housing Finance Association (FHFA) announced last week that they will be raising the maximum conforming loan limits for mortgages acquired by the Enterprises (Fannie Mae & Freddie Mac = ~>50% of the mortgage market) for the eighth consecutive year in 2024 as they attempt to keep pace with elevated home price appreciation levels.

The maximum conforming loan limit is set to rise by 5.56% starting in January after it was determined by FHFA that home values increased by that amount, on average, between 3Q2022 and 3Q2023, according to FHFA’s seasonally adjusted home price index.

Specifically, FHFA will increase its new maximum baseline for 1-unit properties to $766,550 (+$40,350 Y/Y) for most of the country and to $1,149,825 (+$60,525 Y/Y), which equates to 150% of the baseline limit, in areas designated as high-cost.

The recalibration for 2024 is an important one for prospective homebuyers as it means increased access to credit as more buyers become eligible for loans within these limits. Mortgages within these limits typically come with more competitive mortgage rates, lower down payments, lower FICO score requirements, and lower debt-to-income thresholds to meet underwriting eligibility criteria in comparison to the alternative of jumbo and non-conforming loans that borrowers default to when seeking larger loan amounts.

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The move by FHFA to increase conforming loan limits should open the door for increased access to homeownership for borrowers on the fringe or qualifying while providing support for continued home price appreciation as the demand side of the equation gets a slight boost with this latest development. Keep in mind that these conforming loan limits never decrease once a new ceiling is set (as we saw from 2011 to 2016) since FHFA implements a “hold harmless” approach per the guidelines specified in the Housing and Economic Recovery Act of 2008. If home values should decrease then it would mean that more and more borrowers would apply for financing through Fannie and Freddie federally-backed loans, shrinking the jumbo and non-conforming market.

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Housing Market: Supply & Demand Review

The rise in conforming loan limits is yet another demand-side boost to an already imbalanced housing market that continues to see demand outstrip supply.

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Supply Indicator, New Listings:

• New listings continue to remain suppressed and maintain levels that are lower than what we observed from 2017 to 2021. However, we have started to see a slight improvement from 2022 levels with 54.4% of the 800+ metro areas analyzed seeing new listings higher than this time last year.

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Supply Indicator, Active Listings:

• Active listings have essentially been flat throughout 2023 and have not returned to the typical seasonal pattern that we would expect, indicating continued abnormality in the housing market as any new listings do not last long enough to boost the number of houses available for sale. In just 47.4% of the 800+ metro areas analyzed active listings were higher than this time last year.

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Demand Indicator, Median Days on Market:

• Median days on market has continued to pace below last year over the back half of 2023 confirming the relationship between new listings not lasting long enough to boost active listings with homes remaining on the market for just under 35 days. Less than half of markets saw an increase in median days on market compared to last year at just 45.1%.

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Demand Indicator, Percent Off The Market in Two Weeks:

• Two in three homes are off the market within two weeks. Yet another metric confirming eager buyers awaiting new listings that hit the market even during this typically slow time of the year.

Demand Indicator, Percent of Homes Sold Above List:

• For homebuyers that are willing and able to secure a home, 27.3% paid above list price showcasing continued competition in the market despite a deterioration in overall home affordability for homebuyers.

Demand Indicator, Average Sale to List Ratio:

• Following a similar trend to the share of homes sold above list price, home sellers continue to see their homes sold for close to what they are asking at a 98.8% average sale-to-list price ratio.

Supply and Demand Indicator, Median Sale Price and Price Per Square Foot:

• The result of the supply and demand indicator imbalances above showcase why home prices continue to remain elevated nationally and have increased in approximately two-thirds of markets across the country.

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