$729,750 Mortgages Going Away In October

So I was meaning to do a post on the fact that the conforming jumbo mortgage limit is scheduled to go down from $729,750 to $625,500 when I ran across the following discussion on Piggington (a San Diego bubble blog).

The discussion on Piggington links to a NY Times article that you can view here.

There seemed to be a variety of opinions on the San Diego blog about how meaningful this change may be. I don't think it is that big of a deal but it is no doubt a negative on the margin. Conforming jumbo loans carry a decently lower interest rate than true jumbos...and a true jumbo lender may be marginally more stringent on income, down payment, and asset requirements.

Further, I think this change is just one of several potential headwinds for the housing market when it comes to potential policy changes. For a long time it seems that we have been artificially propping up the mortgage and housing markets in this country and it seems with all the budget battles that some sacred cows may be looked at a bit more closely. Reducing the government support via reducing the conforming jumbo limit makes sense in the long term. Along these lines, there has been a lot of talk about at least reducing (if not eliminating) the mortgage interest deduction. I think it would make sense to scale that back and put some restrictions on it, but I don't think it will go away completely any time soon. Finally, there is talk here in our state of proposition 13. Adjusting that would increase housing costs and make the prospect of long term ownership more expensive on the margin.

I guess the one thing I keep coming back to when I look at the entry level for Santa Monica (and other westside areas) is the fact that prices in the $750-$950k area seem so firm. It just seems so obvious that people are able to get government subsidized conforming jumbo mortgages of $729k and then throw down $100-$250k and boom, you get a big group of people trying to get in around that price range.