Good comments and insights everyone. Incredibly helpful to hear what you've been seeing and hearing. I'm in the same boat as David - sitting on the sidelines and after seeing this, thought I should try to get in before the end of the year. I am aware of some homeowner friends who are looking to refi a already pretty good fixed 30 yr and they think this will help them get a refi at a lower rate.

I'm concerned those who don't understand that this is an overvalued market will think this is the time to buy and that would be a mistake. It would keep prices artificially high for a bit longer before they finally corrected. It's election politics and not good sound policy IMO.

However, I don't think it will have much effect because these 'junior jumbos' as some are calling them will not come at the same conforming rate. At least one major lender has warned that they'll be applying a sliding scale to these loans. Something like:

$417K - $500K = +0.25%
$500K - $600K = +0.50%
$600K - $729K = +0.75%

Essentially the financial markets pushed back and told lenders they wouldn't buy these 'junior jumbos' at the same conforming rate. The risk profile is different and they're not keen on taking it in the pants again.

The only other option would be to increase the rate of all conforming loans, which would make Washington go bonkers.

So, I doubt that this will have a substantial impact on sales since the reality will not live up to the hype. Buyers who thought they were going to have access to lower rates will find out it's not THAT much lower, that they might need 20% down.

I'd be inclined to believe the breakage on pending sales will go up as loan programs shift, dry up and buyers find they can't secure a 2nd mortgage on a 80-10-10.

http://walnutcreekcaliforniare...

I agree, Steve.

While this may actually help a few people like myself and some friends if we actually do buy something before the end of the year (it would have to be an absolute steal of a deal!) this will likely not have the significant effect on the market as a whole they are hoping for.

It really only helps people already in strong financial position and not ones who supposedly need help from all of this.

I don't think the new limit for conforming loans will have any effect on the price decreases witnessed since last summer. The GSEs have created - finally - restrictive loan requirements far beyond any that lead to the easy credit since 2001. No cash out refinances, minimum 10% down, full documentation, required re-subordination of second mortgages, DTI under 45%. Overall, the new loans will be available to so few people they won't affect the large reduction in available credit. Also, they aren't available yet. Fixed formerly non-conforming loans aren't available before April 1 (the earliest date Fannie / Freddie will purchase them) and ARM formerly non-conforming loans aren't available to May 1 at the earliest.

Those dates presume that mortgage originators have an interest in issuing these mortgages by that date, a debatable point since they have to alter all risk models and capitalization based on the much larger, and county varying, loans.

Overall, my assessment: no effect. Prices will keep dropping.

I hope the market continues to go down. It seems to me that raising the FHA limit just means that it's easier for the housing prices to stay out of reach for most people in the Bay Area. It would be so much better if they didn't do this.