Homebuilders are not very happy with the recent spate of regulatory actions that could put a damper on their ability to raise prices.
For the past two years the large publicly traded builders seemed to have the wind at their backs. They control a large amount of land in desirable areas and continue to buy more as they complete and sell off new home communities.
They had the labor and the capital to build with little competition from local builders who struggle to get financing and secure finished building lots.
All the while Lennar Corp., KB Home and the other publically traded builders continually test the market to get the highest possible price for their homes. In some cases, they push the price to where they dont have a sale for a week just to make sure they are not giving anything away.
The average sales price of a Lennar home rose to $307,000 in fiscal year 2013, up 18% from the prior year. KB Home also reported an 18% increase in its home prices in FY 2013.
And they could do this without worrying about the financing. Thats because the Fannie Mae, Freddie Mac and Federal Housing Administration loan limits remained at pre-housing bust levels.
But that is changing. FHA has adjusted its loan limits. On Jan. 1, 146 counties will see loan limit reductions of over 20%, including 17 counties with reductions ranging from 40% to 50%, according to the National Association of Home Builders.
In Las Vegas, the FHA loan limit will drop from $400,000 to $287,500 on Jan. 1. Meanwhile the Fannie Mae loan limit will remain at $417,000.
KB Home expected the FHA loan limit to drop to $625,500 from $729,750 at yearend. No problem with that, said KB Home chief executive Jeff Mezger.
But cities like Phoenix and Las Vegas saw pretty significant drops. That is where we were surprised, he told Wall Street analysts and investors during a Dec. 19 conference call on KB Homes fourth-quarter results.
FHA officials based the loan limits on the highest median house price between 2008 and 2013. Prices in places like Las Vegas peaked in 2006-2007. But after hitting bottom in 2009, they still have not fully recovered.
Meanwhile, the GSE regulator has issued a request for public input on possibly reducing the maximum Fannie Mae and Freddie Mac loan limit to $600,000 from $625,500 and the floor loan limit to $400,000 from $417,000. Counties with loan limits between $400,000 and $600,000 could see 4% reduction.
In addition, the Federal Housing Finance Agency is moving toward increasing the loan fees Fannie and Freddie charge lenders.
Theres a lot of swirl in the mortgage market that we are trying to understand, Mezger said. We are being watchful right now on the trends and how it develops over the next 60 days.
SHOUT OUT: Weve been giving a shout out this year to anyone supporting the mortgage business by hiring ten net new people. The number of shout outs weve given in the second half of the year has dried up pretty remarkably, but heres one that just makes our criterion. Inlanta Mortgage of Brookfield, Wis., has hired Lori Jasicki as branch manager of its Brookfield branch office. Inlanta also recently added senior manager Paul Buege. Inlantas Oconomowoc, Wis., branch added two new senior mortgage loan officers, Resa Werra and Mollie Burke. The Madison, Wis., office hired a new processor, Karen Higgins, and the Marshfield, Wis., branch welcomed Brittany Radue. Inlantas Manchester, N.H., office welcomed client relations coordinator Amy Fortier and the Appleton, Wis., office added loan officer Lee Stevenson and client relations coordinator Jean Lindisch-Rihm. The Lakewood Ranch office in Florida added Shari Burgo as a business development assistant. That makes ten. Nice jobs, Inlanta!
COMMENT OF THE WEEK: When in doubt, get paranoid! That seems to be whats behind this anonymous comment on our content No Escape from Regulation in 2014 but Some Benefits Arise: All sorts of concessions to folks not paying on the predatory loans they were saddled with in the 2005-2009 era. Ask yourself why? Because the scheme that stripped the equity off of millions of Americans was illegal and the cover-up continues…What other reason could there be? We will omit the entertaining but not very family-friendly remark passed about sausage and well-known television personality Judge Wapner, whose name BTW was misspelled.
MOST READ/EMAILED CONTENT: The most-read content this week was the piece by Brian on the dropping of the FHA loan limit for 2014. Many in the industry are not in favor, although this is in line with public policy pronouncements on getting taxpayer exposure to mortgage losses down. Brian scores a twofer as his content on new home sales and construction was our most emailed piece for the week. The cheerful conclusion of a mini-boom in this most depressed of all depressing housing niches will be good news for housing and mortgage execs. Now, well see if it comes true!
BLOG OF THE WEEK: This week were going with Ted Cornwells blog on security alerts. The thrust of it is that lender IT departments are getting worn out by the number of security alerts they have to investigate. Our conclusion? Time for Version 2.0 for those technology departments!
Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the groups senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.