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While most U.S. counties, including in Connecticut, will see a double-digit increase next year to the conforming loan limit, Fairfield County will no longer qualify as a high-cost area, a move that caught the industry by surprise.

“It’s been years since Fairfield County wasn’t considered a high-cost area, which was shocking to me,” said Jarret Coleman, a loan originator with U.S. Bank. “But also, Fairfield County is a very divided county as well, because you have, obviously, extreme wealth in Greenwich and any towns closer to that, but then you also have Bridgeport in Fairfield County, which is at the opposite end of the spectrum.”

Having higher conforming loan limits typically gives more options to homebuyers beyond a jumbo loan, which often comes with higher rates and stricter requirements compared to loans that meet Fannie Mae and Freddie Mac guidelines. But with high home values in parts of Fairfield County already prompting some bank lenders to offer competitive jumbo loan products, the change to the conforming limit might have greater effects outside Fairfield County.

Region Misses Big Bump

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 have even higher conforming limits, but Fairfield County will not qualify for a higher limit next year. Fairfield County, which had its limit increase more than 15 percent in 2022 to $695,750, will see the limit rise only 4.4 percent in 2023 to the 726,200 baseline.

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.

Among the top 100 U.S. metropolitan regions reported by the FHFA, four regions that included all or part of Connecticut saw double digit year-over-year increases in house prices.

• Bridgeport-Norfolk-Stamford: 12.1 percent
• Hartford-East Hartford-Middletown: 11.4 percent
• New Haven-Milford: 10.6 percent
• Worcester County, Massachusetts, and Windham County: 10.2 percent

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.

Connecticut had about 25,800 single-family and condo purchase mortgages through the first three quarters of 2022, down 17.9 percent year-over-year, according to The Warren Group, publisher of The Commercial Record. During the third quarter, the state had about 9,600 single-family and condo purchase mortgages, down 22.8 percent compared to the third quarter of 2021.

Fairfield County in the first nine months of 2022 saw single-family and condo purchase mortgages decline by 23.1 percent to 6,880 loans.

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 earlier this month. “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.”

Lender Competition Helps Consumers

Homebuyers who need loans above the conforming limits turn to jumbo loans, which can have stricter requirements, including higher credit scores, reserves, and down payments, and lower debt ratios, as well as higher rates.

For bank lenders that keep loans in their portfolio rather than selling them on the secondary market, jumbo loans can be just as competitive as loans being sold to Fannie Mae and Freddie Mac.

“The elevated limit helps a lot more people stay in the conforming loan range instead of the jumbo range,” said Martin Morgado, president and CEO of the Savings Bank of Danbury. “But there are many lenders out there that their jumbo loan rates are lower than their conforming loan rates.”

Savings Bank of Danbury, which lends in Fairfield County and across Connecticut, has lowered its jumbo rates to match conforming rates, staying competitive in the market and providing more consumer-friendly products, Morgado said. He added that many buyers in Fairfield County looking for loans at or below the conforming limit often already have a higher down payment and more cash reserves.

The bank has first-time homebuyer products, and prospective borrowers have recently become more particular about finding the right home and lending option for their situation, Morgado said.

For those buyers who do not qualify now for a conforming loan but might in 2023, Morgado said the bank will consider how to approach which product is better for the borrower.

Coleman, with U.S. Bank, said a small segment of prospective Fairfield County borrowers, who do not currently qualify for jumbo mortgages because of credit scores, might benefit from the higher conforming limit. But even with Fairfield County losing its status as a higher-income county, the competitive jumbo loan products offered by banks will likely limit the impacts on borrowers.

He added that the 12 percent increase to conforming loan limits in other parts of Connecticut could have positive impacts for more borrowers who do not qualify for jumbo loans.

“Where it does certainly continue to expand homeownership is in some of the other counties in the state: Litchfield, New Haven, Hartford,” Coleman said. “Being able to offer conforming agency loans up to those higher limits, that certainly has a big impact because so many of the homes fall within that price point.”