Will suddenly affordable jumbo loans unlock the move-up market and kindle demand for unsold upscale properties?
High end sales have been picking up through the spring and early summer, even in the wake of the demise of the tax credit, whose impact was felt almost exclusively at the lower end of the market. The moribund economy and lenders who have re-entered the jumbo market have driven down jumbo rates to five-year lows that are giving hope to homeowners who have been unable to sell since the 2006 crash.
Just a year ago jumbo loans went for nearly 7 percent and they were hard to get even at that rate. Tougher lending standards that often included down payments as high as 20 to 40 percent make it hard for many buyers. Only a handful of lenders were making jumbo loans-- loans that exceed Fannie and Freddie’s conforming loan limits, which currently vary by locale from $417,000 to $729,750.
Total Mortgage is currently quoting rates from 3.50 percent on a 15 year ARM conventional jumbo to 5 percent on a 30 year fixed. MortgageBase is quoting a
$750,000 to $1.5 million 5/1 ARM at 4.250 percent, with .75 points. The average U.S. rate for a 30-year fixed jumbo mortgage fell to 5.47 percent on June 29, the lowest since 2005, when the real estate boom was near its peak. Just a year ago, the average rate on a 30-year jumbo mortgage was 6.86 percent.
A single percentage point has a huge impact on demand. A homeowner with a 30-year fixed-rate $800,000 mortgage at 6.86 percent pays $5,247 a month. If he were to refinance at 5 percent, his monthly payments would be reduced by $952. Suddenly buyers can afford properties that were out of their price range simply due to the drop in rates.
Lenders are busy with the new demand. Citigroup Inc.'s Citibank unit reported applications for jumbo mortgages at its retail branches were up 30% over the previous 60 days. Bank of America Corp., meanwhile, is now offering "competitive rates" on jumbo loans, starting in the 5% range. Wells Fargo and US Bank also are now aggressively marketing jumbos.
The low rates have turned around high end home sales in major markets across the nation this spring.
Denver-area sales of homes priced at $1 million or more jumped 61.8 percent in May from a year earlier, according to Coldwell Banker Residential Brokerage's monthly report on high-end sales. Fifty-five homes priced at $1 million or more sold in May in the metro area, up from 34 in May 2009. Luxury homes that closed in May took an average of 122 days to sell, versus 131 in May 2009, the report said. And luxury-home sellers got an average of 93 percent of their asking price in May, up from 83 percent a year earlier.
In Silicon Valley, mmillion-dollar home sales rose sharply in May, according to Coldwell Banker. A total of 251 homes sold for more than $1 million in May in Santa Clara County, up nearly 70 percent from May 2009's total of 148 sales. Home sales were also up nearly 10 percent from April's total of 229 transactions. May closings took an average of 41 days to sell compared to 53 days last May. And home sellers are getting a higher percentage of their asking price─99 percent compared to 90 percent during the same period a year ago.
In Las Vegas, Data Quick’s figures show that May’s sales of homes above $500,000 also rose to 2.5 percent of all transactions, up from 1.9 percent in April and 1.7 percent in May 2009 while sales below $200,000 fell.
In Miami Data Quick found that houses and condos that sold for $1 million or more dipped 6.8 percent in April but were up 56.1 percent from 132 sales in April 2009. Forty percent of the $1 million-plus transactions were for resale condos. The peak month for $1 million-plus home sales was in June 2005, when 583 sold in the Miami area.
While strict underwriting guidelines still make it tough on many borrowers, lower rates on jumbos than the market has seen in years are breathing new life into the upper end of the market.
Steve Cook is a nationally recognized speaker and author. He has worked with various companies and organizations as a consultant. He has an extensive background in public relations, journalism and politics. Check out his Real Estate Economics Newsblog on RealTown. Contact Steve at firstname.lastname@example.org