The federal government thinks Colorado is getting expensive
Anyone who lives in most parts of Colorado over the last 5 years has seen huge gains in real estate appreciation. In many parts of the front range if a house is priced under 300k, it is sold within days with multiple offers many above the asking price. Zillow recently named Denver the fastest appreciating market in the country. Fannie/Freddie, the largest purchasers of mortgages, has taken note as well.
- What does Fannie/Freddie have to do with Colorado Real Estate?
- What is a conforming loan and why is this important?
- What areas in Colorado are now considered high cost areas?
- What is the biggest surprise area that increased? I’m certain you cannot guess this one!
- What is driving the rapid increase in value
- Why do certain areas have higher limits than others?
- See a chart I created that highlights all the areas that are now considered “high cost” areas and their new loan limits
We have all read the news that Denver and the front range is increasing at a torrid pace along with many of the mountain communities (See Denver Post Article). The federal mortgage insurers have taken note of this rapid increase and have subsequently increased the conforming loan limits in many counties throughout the front range and mountain communities (see chart below for Colorado)
What does Fannie/Freddie have to do with CO real estate?
Fannie Mae and Freddie Mac our what are referred to as GSE’s (government sponsored entities); basically they have the backing of the federal government in order to ensure a smooth mortgage marketplace. When a bank makes a conforming loan, more often than not it is sold to either Fannie or Freddie so that the bank can turn their capital. In a nutshell the GSE’s define what loans they will buy. With many areas in Colorado being a “high cost area” Fannie/Freddie is now able to buy larger loans (in some cases up to 625k) which allows borrowers to buy more expensive homes before going into the jumbo realm
What is a conforming loan and why is this important?
A conforming loan basically lays out the maximum loan size that Fannie/Freddie will buy from lenders. With prices increasing throughout Colorado, many were pushed into the jumbo loan category. Underwriting standards for jumbo loans can be more stringent than for traditional conforming loans. For example, to get a jumbo loan a borrower might have to put down 30-40% and have higher credit requirements than the traditional 20% down for a conventional loan. By raising the conforming loan limits this allows more buyers to possibly afford more expensive houses
What areas in CO are now considered high cost?
I made a table below (originally from fannie website) and filtered for Colorado and sorted for increases (highlighted the increases in yellow). Basically the entire front range metro area increased about 10% on the loan limits (from 417k) and many of the mountain areas increased to the maximum conforming limit (625k). Here is a link to the entire spreadsheet so you can also see all the counties, other states, etc…
Why do certain areas have higher limits than others?
The government looks at the various metro statistical areas (MSA) and the average home price to determine the loan limits. The areas that change from the maximum 417k were determined to be “high cost” areas. As you can see from the chart below which I’m sure is not a huge surprise, the Denver front range and the mountain areas were the biggest movers in regards to raising the conforming loan limits
What is the biggest surprise increase in conforming loan limits?
When I look at the list below, I see Hinsdale county. I drive 30k miles in Colorado a year looking at residential and commercial hard money loans so I’ve been through most (if not all) areas of the state. The inclusion of Hinsdale county stumps me. The only city I’m aware of in the county is a small town called Lake city, much of the area is inaccessible for much of the year due to snow. My only theory as to why it was included is that maybe some larger ranches skewed the sales. With so few sales it wouldn’t take much to raise the average. Or the other theory is that a mistake was made that nobody caught. Either way, I don’t see Hinsdale county (on a map not far from Gunnison and the black canyon) as one of the “hot” areas in Colorado
What is driving the rapid increase in value?
Housing abides by the simple economic principle of supply and demand. On the supply side there is not enough inventory and there isn’t enough available land in order to drastically increase supply in the desired areas. Take for example an area where I live in the foothills, Evergreen, there are very few available lots, and the available lots are very expensive (over 250k/acre +) so the only houses being built would be high end custom houses. This further brings the market up. Along with supply, the demand is insatiable. Colorado in general has an extremely healthy economy (see Denver Post article: Colorado has lowest unemployment rate) with the employment rate one of the lowest in the country. This has led to huge gains in net in migration and all those people have to live somewhere. This trend will continue (and could accelerate), see a recent article: Will Denver lose its Mojo, that I wrote for the CO biz magazine.
| State | County Name | 5-Digit County Code | 2-Digit State Code | 3-Digit County Code | Metropolitan Designation | 2016 Loan Limit 1 Unit |
| COLORADO | EAGLE | 08037 | 08 | 037 | EDWARDS, CO | $625,500 |
| COLORADO | GARFIELD | 08045 | 08 | 045 | GLENWOOD SPRINGS, CO | $625,500 |
| COLORADO | LAKE | 08065 | 08 | 065 | NON-METRO | $625,500 |
| COLORADO | PITKIN | 08097 | 08 | 097 | GLENWOOD SPRINGS, CO | $625,500 |
| COLORADO | ROUTT | 08107 | 08 | 107 | STEAMBOAT SPRINGS, CO | $625,500 |
| COLORADO | SAN MIGUEL | 08113 | 08 | 113 | NON-METRO | $625,500 |
| COLORADO | SUMMIT | 08117 | 08 | 117 | BRECKENRIDGE, CO | $625,500 |
| COLORADO | BOULDER | 08013 | 08 | 013 | BOULDER, CO | $474,950 |
| COLORADO | ADAMS | 08001 | 08 | 001 | DENVER-AURORA-LAKEWOOD, CO | $458,850 |
| COLORADO | ARAPAHOE | 08005 | 08 | 005 | DENVER-AURORA-LAKEWOOD, CO | $458,850 |
| COLORADO | BROOMFIELD | 08014 | 08 | 014 | DENVER-AURORA-LAKEWOOD, CO | $458,850 |
| COLORADO | CLEAR CREEK | 08019 | 08 | 019 | DENVER-AURORA-LAKEWOOD, CO | $458,850 |
| COLORADO | DENVER | 08031 | 08 | 031 | DENVER-AURORA-LAKEWOOD, CO | $458,850 |
| COLORADO | DOUGLAS | 08035 | 08 | 035 | DENVER-AURORA-LAKEWOOD, CO | $458,850 |
| COLORADO | ELBERT | 08039 | 08 | 039 | DENVER-AURORA-LAKEWOOD, CO | $458,850 |
| COLORADO | GILPIN | 08047 | 08 | 047 | DENVER-AURORA-LAKEWOOD, CO | $458,850 |
| COLORADO | JEFFERSON | 08059 | 08 | 059 | DENVER-AURORA-LAKEWOOD, CO | $458,850 |
| COLORADO | PARK | 08093 | 08 | 093 | DENVER-AURORA-LAKEWOOD, CO | $458,850 |
| COLORADO | HINSDALE | 08053 | 08 | 053 | NON-METRO | $427,800 |
| COLORADO | OURAY | 08091 | 08 | 091 | NON-METRO | $425,500 |
Resources/links:
See full spreadsheet for all areas in Colorado: loan limit update
https://www.fanniemae.com/singlefamily/loan-limits
http://www.denverrealestatewatch.com/2015/12/30/zillow-denver-tops-u-s-for-home-appreciation/
http://www.denverpost.com/business/ci_27867166/colorado-home-prices-rising-at-fastest-rate-country
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized as the leader in hard money lending / private lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).