Rise In Conforming Loan Limit Could Buoy NYC's Low End

President Bush is expected to sign into law today, an economic stimulus package which is to include a raise in the conforming (conventional) loan limit to 125% of local median home prices, with a cap of just under $730,000. For much of New York City, this means an instant jump to the cap rate. While most economists admit that the move won't hurt, many see the impact as muted. I would argue that the raise in limit will have a fairly substantial impact.
Take as an example a $900,000 apartment in Manhattan with a 20% down payment. Assuming fixed costs of $1000 per month (maint. or cc's and re tax), your monthly costs on a jumbo at 6.65% would be $5622.. With the benefit of a 5.6% conforming loan, that number drops to $5133. The difference is nearly 10%. Additionally, when buying higher priced apartment, more buyers will be tempted to put more money down to capture the lower rate. One of the biggest reasons for New York's real estate resiliency has been the fact that coops on average require 25% or more down and most condos require 10% or 20% down. These requirements have kept the NYC market largely out of the sub-prime debacle fray. The raising of conforming loan limits will only reinforce this subtlety and further insulate the New York market.