A recent MarketWatch.com article notes, "The Federal Housing Finance Agency plans to reduce the maximum size of mortgages backed by Fannie Mae and Freddie Mac this January. The current limits are $417,000 in most parts of the country and up to $625,500 in more expensive markets."
At first glance, this might not seem like a big deal. But the article goes on to say, "The agency hasn't announced how much it will lower loan caps, but data compiled for MarketWatch by Lender Processing Services, a mortgage-data tracking firm, shows that a decline of just $25,000 from the current caps would impact hundreds of thousands of home buyers in middle-priced and upper-middle-priced housing markets - areas that are relatively upscale but far from the most expensive."
And two of the most impacted areas? Cook County, IL (our county of residence) and DuPage County, IL (right next door).
But how could a housing market "squeeze" so to speak actually help our home's value?
Lowered caps on mortgage
With reduced caps on mortgage may come a reduced number of higher-value homes that are sold in our area. If people can't get the single-family home they'd like, they may be pushed toward exploring other options…like condominiums such as our home. Therefore, with a "trickle down" sort of effect, those who might have been buying mansions or higher-priced homes might instead buy more average homes, those who would have bought average homes might in turn find inventory lower and therefore turning toward smaller homes, and those who might have bought smaller or "starter" homes could be in turn look at condos or apartments.
Rising interest rates
Mortgage interest rates have been fluctuating lately. With talk of Fed tapering and there still being some uncertainty surrounding the overall health of the economy and the sustainability of the recovery, people have been wondering whether mortgage rates will go higher.
If -- or might aptly, when -- rates begin to rise, this could help squeeze certain potential homebuyers, affecting what they can afford. Again, those who could afford a $200,000 mortgage at 4 percent might only be able to handle a $175,000 or $150,000 mortgage at 5 or 5.5 percent. And such a difference in mortgage amounts could also be the difference between being able to afford a larger, stand-alone, single-family home or a condo.
Low value properties in a high-value area
When we purchased our condo, we carefully considered the location in which we purchased. In our previous home, we thought through the type of home we wanted well, but we neglected to consider the neighborhood as carefully, which ended up costing us dearly when we sold as the area didn't retain it's value as well as other nearby locations.
Therefore, when we bought this time around, we purchased a lower-value property in a high-value area. Not only did this get us a great location with good schools at a lower property tax rate and purchase price, but when we sell we hope that it opens the door to more buyers who are looking for the same thing. Being able to appeal to a wider range of buyers can help us get more traffic in the door in hopes of selling our condo not only at a higher price but in a faster timeframe as well.
With these market factors at work, we're hoping that the condo market will once again become hot, creating a potential opportunity for us in the process.
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The author is not a licensed financial or real estate professional. The information provided in this article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
- Real Estate
- Federal Housing Finance Agency
- Lender Processing Services