October 1, 2011, was a benchmark day in mortgage lending nationwide.
It marked the federal government's loan limit reduction on conforming loans. These are loans made by banks that the government will either buy or insure. Loans within these limits are also eligible for low down payment (3.5%) FHA financing.
While we were in the teeth of the recession, the federal government (agencies such as Fannie Mae and Freddie Mac) increased the lending limit in high-cost areas like New York City and California to $729,750 for a single-family purchase, in an attempt to stimulate the economy.
Why this number is important is because the primary lending market – most major banks – will offer loans within these limits at very competitive interest rates, because they know the government will either buy or insure the loans.
Any loans above these limits are considered Jumbo Loans. Jumbo Loans are usually offered by what's considered the secondary market at much more aggressive rates.
But now the government is reversing itself, and there has been much media ballyhoo about how this reduction of the loan limits will weigh on the still fragile national housing market.
There are two sides of the debate. UPI.com states, "The Federal Housing Finance Agency said only a relatively small number of borrowers in certain markets will be significantly affected, primarily larger-balance mortgages in California and a small number in other states."
On the other side, Ron Phipps, president of the National Association of Realtors states in Bloomberg.com said, “While housing is really struggling to recover, we don’t understand why we continue to put impediments to that recovery in place. We are going to take this to the 11th hour, or frankly, the 11th hour and the 59th minute.”
Well, the 12th hour is upon us and President Obama and his crew did not blink. The limits have been lowered. Most lenders in the primary market adjusted their limits months ago.
The irony for those that are buying or selling in Bed Stuy is that this reduction in loan limits should have no actual consequence on our market. It's all in the math.
New reduced loan limits: Single-family loan or condo $625,500. Two-family home $800,775. Three-family home $967,950. Four-family home $1,202,925. These new limits still offer more than enough financing room for the present price points in the Bedford Stuyvesant condo and multi-family homes sales market.
However, anyone walking the streets of Bed Stuy can see that a shift is in effect. A recent Wall Street Journal article, "Bedford Stuyvesant Steps Up Its Game" offered its two cents on our beloved community, pointing out how although the housing sales volumes have dropped or leveled out citywide, in Bed-Stuy, the volume of sales in the neighborhood has picked up since 2008.
That is to say, these prices may not be reasonable for long.
Martin Tkalla Keaton is a senior associate and Multi Million-Dollar Club member of the Corcoran Group.