Try and wrap our arms around what the upcoming new GSE and FHA loan limits mean for home building. Earlier this week, we tackled the fallout of the GSE loan limit resets, identifying the 10 counties where new-home building would be most affected by the decreasing loan limits. Now, it’s the FHA’s turn.
When the NAHB completed its initial analysis, it found that as many as 15% of all homeowners (both in new and existing homes) would be in homes ineligible for FHA-insured mortgages under the new FHA loan limits. In the affected counties, that percentage shoots up to 59% post-loan limit reduction.
When we tried to isolate the new-home market impact, we looked at all the counties where new limits are set to take effect on Oct. 1 and found that, on average, around 10% of the new-home sales that took place within the trailing 12 months (March 2011) would have fallen outside the new limits.
However, when we dug deeper into the data and looked at the 25 counties where the largest number of new homes (at least 200 homes) would have been affected by the new loan limits, that average more than doubled to 20%. That means 1 out 5 new-home sales in those counties has the potential to disappear once these new limits take effect this fall; mortgage lenders are reticent to underwrite mortgages that cannot be either insured by FHA or backed by GSE guarantees.