Many homebuyers will have to settle for smaller mortgages this fall. Loan limits fell across the country at the beginning of October. The maximum amount for jumbo-conforming loans -- mortgages for more than $417,000 but which can be sold to Fannie Mae and Freddie Mac -- was reduced to $625,500. The upper limit had been $729,750. Limits on FHA loans, which are mortgages backed by the Federal Housing Administration, also have been reduced.
Home values in high-priced markets will be hit hardest by the recent changes, Peltier says. But the effect will be seen in markets in various price ranges all over the country, says Mathew Carson, a mortgage broker at First Capital Group in San Francisco.
The loan limit reduction "takes a lot of people out of a certain market, but it more than likely forces people in that price range to reduce the listing prices of their houses," he says. "This reduces the prices of the houses below it as well … (It's) a basic ripple effect."
White says the notion that these reductions would only affect the "wealthy" is a myth.
"This does not just impact high-priced homes in wealthy communities, but 669 counties in 46 states," he says.
If you are a seller, you may be forced to reduce the asking price on your home, so the price is within the new limits to attract a broader group of buyers, White says.
It's early to estimate the exact impact on home prices, but White says he expects the reduced limits to trigger a decline of 3 percent to 5 percent in home values on average.
"Not what the industry needs right now," he says.