Last week, the Federal Housing Administration (FHA) announced it was reducing the loan limit for FHA-insured loans from $729,750 to $625,500 beginning Jan. 1, 2014. However, while the FHA is required by statutes under the Housing and Economic Recovery Act (HERA) to lower its cap on loan limits, it has also interpreted HERA to require it to reset metropolitan statistical (MSA) median home prices.
Since 2008, FHA has based its MSA median home prices on the highest median home price for a county over time (which for many counties has meant 2007 home prices, when prices were at a peak). According to FHA’s announcement, FHA believes it must use 2008 price levels. If an area’s median home price has increased since 2008, FHA will use the higher median price. However, home prices in many areas are still below 2007 levels, which has resulted in the drastic reduction of FHA’s MSA median prices. In California, it has resulted in reductions of an average of more than $100,000 statewide.
View FHA’s announcement and the new FHA median home prices.