HUD needs to take a new look at the FHA limits in Southern California

A key headwind in many parts of the Inland Empire, especially those cities near the border of the Coastal Counties (Orange, LA and SD) is the low SFR FHA limit. Currently, the FHA limit in Orange County is $625,500 while the FHA limit in Riverside County is $356,500, or 43% lower. As prices have escalated in Orange County, there has been a notable increase in Inland Empire home prices closer in. To get a little more granular, Yorba Linda, which sits on the eastern edge of Orange County, has a Median New Home Price of $1,307,100 per the most recent Zonda Report (Meyers Research). Corona, which borders Yorba Linda, but is in Riverside County, has a Median New Home Price of $516,063. The relatively low FHA limit for Riverside County, and hence Corona, makes the bulk of new homes ineligible for FHA financing which results in much larger down payment requirements. In recent discussions with the CFO of a well known Inland Empire homebuilder, they are seeing about 50% better absorption (4/month versus 2/month) in their projects where prices are within the FHA limits.

A similar scenario is playing out in south Riverside County where Temecula, which is in Riverside County but borders San Diego County ($580,750 FHA limit), has seen price appreciation bring its Median New Home Price to $522,292, well over the FHA limit. This has negatively impacted sales in that area.

A recommendation to HUD is that they develop a more graduated FHA loan limit based on zip codes versus the current county-by-county process. Where a county borders a higher priced county, the cities closer in should have a higher FHA limit than the cities further out. For example, Corona has the same FHA limit as Blythe, CA, which is ~184 miles east. The Median Home Price in Blythe is currently $103,100. This does not make a lot of sense. Hopefully logic will prevail and we will get some movement on the limits which would assist potential homebuyers fulfill their dream of owning a home.
Director of Business Development