Few can deny that first-time homeownership is an uphill battle these days. Between higher home prices, low inventory, an uptick in mortgage rates, and rising inflation, it has become increasingly difficult for lower-income borrowers to find affordable homes and start generating homeownership wealth.
By raising loan limits for first-time homebuyers, the FHA has delivered some hope for potential borrowers in the new year. FHA loan limits are now $420,000 in most U.S. counties and as high as $970,000 in particularly expensive markets. The $420,000 limit applies to counties where 115% of the median home price is less than that amount.
The raised limits are especially welcome given the robust gains in housing prices nationally. But do the new FHA loan limits give would-be homebuyers enough optimism to keep their homeownership dreams alive, in spite of the obstacles in their way? It’s an important question because obstacles are growing larger by the day.
Confronting challenges and obstacles
As inflationary pressures hit the country, one need look no further than the nation’s housing market as a key indicator for the high cost of living. The most recent S&P CoreLogic Case-Schiller data found home prices continued their upward march across the U.S. in November, rising 18.8% annually — the sixth-highest reading in 34 years, according to Craig J. Lazzara, S&P DJI managing director.
Despite rising rates, low housing inventory will likely push home prices higher for the foreseeable future. In the past couple of years, investors and all-cash buyers have competitively bid up home values, making appraisals sometimes irrelevant to what buyers will actually pay. Even buyers who had been lucky enough to receive help from family members found steep competition from cash offers. Frequently, the amount of funds needed to meet minimum down-payment and closing-cost requirements, made it difficult for would-be homeowners to compete with cash offers.