The size of the increase in the 2023 conforming loan limits will, as usual, help keep some buyers in the market. But it could also open opportunities for refinance loans later in the year, some loan originators hope.

While surging inflation and mortgage rates stymied the residential mortgage market this year, the industry has greeted the recent increase to next year’s conforming loan limits with optimism. 

As rising home prices have pushed some homebuyers to look into jumbo loans, which often come with stricter requirements compared to loans that meet Fannie Mae and Freddie Mac guidelines, having higher conforming loan limits next year will give homebuyers more options as they adapt to an uncertain economy. 

“Having the conforming loan limit be much higher, it really allows our clients a lot more flexibility when they couldn’t be approved for something like a jumbo loan,” said Katie Weldon with Total Mortgage in Leominster. “I’m seeing a lot more people put less down to have more reserves as the economy shifts a little bit just so that they have backup plans.” 

Islands Break $1M 

For lenders to sell mortgages to Fannie Mae and Freddie Mac, the loan amount cannot exceed the Federal Housing Finance Agency’s conforming limit, which for owner-occupied single-family and condominium properties in 2023 will be $726,200, up from $647,200 in 2022 and $548,250 in 2021. 

Counties with more expensive homes will have even higher conforming limits. Suffolk, Essex, Middlesex, Norfolk and Plymouth counties will see the conforming loan limit go from $770,500 in 2022 to $828,000 in 2023, a 7.4 percent increase. The 2021 limit in these counties had been $724,500. 

The conforming loan limit in Nantucket and Dukes counties will increase from $970,800 to $1,089,300.  

The FHFA adjusts the conforming loan limit to reflect the change in the average U.S. home price, as required by the Housing and Economic Recovery Act. The conforming limit is determined by the FHFA’s estimated housing price increase. According to FHFA’s seasonally adjusted data, house prices in the U.S. increased by 12.2 percent between the third quarters of 2021 and 2022. 

Massachusetts has seen the year-to-date median single-family sale price increase 7.8 percent year-over-year to $550,000 through October of 2022, according to The Warren Group, publisher of Banker & Tradesman. The year-to-date median sale price was $745,000 in Middlesex County, $695,000 in Norfolk County, $625,000 in Essex County and $725,000 in Suffolk County.  

While prices increased year-over-year nationwide, rapidly rising rates and economic conditions had slowed down the housing market and price appreciation. The FHFA said third quarter house prices were up 0.1 percent compared to the second quarter. 

Massachusetts had about 50,400 single-family and condo purchase mortgages through the first three quarters of 2022, down 13.7 percent year-over-year, according to The Warren Group. During the third quarter, the state had about 18,800 single-family and condo purchase mortgages, down 17.8 percent compared to the third quarter of 2021. 

Mortgage activity nationwide has continued to drop during the fourth quarter. The Mortgage Bankers Association, which tracks weekly mortgage purchase and refinance activity, found that purchase loan activity was down nearly 70 percent year-over-year as of Dec. 2.  

“Despite the ongoing decline in mortgage rates that started in October, prospective homebuyers continue to delay decisions to purchase homes, even as home prices flatten or fall,” MBA President and CEO Bob Broeksmit said in a statement last week. “The average loan size for a purchase application [the week ending Dec. 2] was at its lowest level in nearly two years, another indication that home prices are cooling.” 

Could New Limits Lead to Refis? 

While some areas of Greater Boston have seen houses stay on the market longer or sell below asking price, the homebuying process remains competitive in other pockets of the region, said Jay Tuli, president of Arlington-based Leader Bank.  

While the rapid increase in mortgage rates has been the key factor in keeping prospective homebuyers from qualifying for a mortgage, Tuli said, increasing home values have pushed some homebuyers in the region to take out jumbo loans. These loans can have stricter requirements, including higher credit scores, reserves and down payments, and lower debt ratios.  

“Typically, portfolio lenders would want to see 20 percent down,” Tuli said. “For those who have less, obviously, that becomes hard to do, and with home values having increased so quickly, that leaves people out of the market.” 

The higher conforming loan limits will give more financing options to more homebuyers, Tuli said. He added that having more options to homebuyers will also translate to increased competition among lenders, likely benefiting consumers with better rates and lower fees. 

Higher conforming limits could even boost the currently moribund refinance market in the next year or two. George Koutsos, with CrossCountry Mortgage in Danvers, said mortgage rates are forecast to drop along with inflation, particularly if there is a recession in 2023. 

Diane McLaughlin

“What that will mean is a lot of people consolidating their mortgage, credit cards or home equity lines at some point in the second half of next year or 2024,” Koutson said. “That will allow people that were near the limit to have a higher conventional loan limit, which will help them refinance and improve their cash flow and their financing.” 

While the counties around Greater Boston saw the conforming loan limit increase by a smaller percentage compared to the baseline limit, for Total Mortgage’s Weldon, the 12.2 percent increase in Worcester County was welcome news. 

“I actually feel like they took a little bit too long to catch up based on the market and what our clients were purchasing,” Weldon said. “I’m really excited to see that it made such a jump and that will help so many people.” 

Weldon said she mostly works with first-time homebuyers who don’t meet the requirements for jumbo loans. While Worcester County’s conforming loan limit remains below Middlesex County’s, buyers will still have more options now when choosing a home.  

“It just stinks that you have to go buy a house in a town that you don’t really love because that’s what the loan options allow you to do,” Weldon said. “To me, it’s kind of silly.”