It's Getting Easier to Buy an Expensive Home -- Which Could Drive Real Estate Prices Even Higher
Homebuyers hoping for some reprieve from high home prices may be sorely disappointed after the latest announcement from Federal National Mortgage Association, or Fannie Mae (OTC: FNMA), and the Federal Home Loan Mortgage Corporation, or Freddie Mac (OTC: FMCC), which, according to the Wall Street Journal should raise loan limits for single-family conforming loans to as much as $1 million. In an attempt to combat the expensive housing market, this loan limit increase will make it easier to get a loan on expensive homes but may cause home prices to rise even further.
Home prices have skyrocketed over the past year, at an average national appreciation rate of 19.8%. Many high-demand markets have risen even faster. Boise, Idaho for example, has seen an over 41% increase in home values over the past year. Austin, Texas, is right behind, with home values increasing 40.6% year over year.
Low interest rates, which incentivize homebuying, and a national housing shortage have created the perfect storm for home values to rise over the past year. When policies are enacted that make getting loans easier or cheaper, naturally consumers buy more. Demand without an increase in supply means prices go up. And the increase in loan limit levels should incentivize more homebuying despite no major influx predicted for home supply.
Source Fool.com
