Demand for new mortgages is finally revving up—among big spenders, anyway.
Home sales using a jumbo mortgage had year-over-year growth of 7.9% through September, compared with 2.7% for nonjumbo sales, according to an analysis for The Wall Street Journal by mortgage-technology company FNC.
It’s the latest sign that jumbo loans, defined as $417,000 and up in most places ($625,500 and up in high-cost areas), are boosting sales of luxury homes across the U.S.
Homes sold in major metro areas with a loan of $1 million or more were up almost 28% through September compared with the same period last year, the highest total since 2008, according to real-estate information company Dataquick. Similar sales with loans of less than $1 million rose 8.5%.
“There’s no question that the increased availability of jumbo loans is stimulating home purchases on the high end,” says Guy Cecala, publisher of Inside Mortgage Finance.
Home buyers and their brokers say jumbos make it possible to compete in coastal cities where the cost of entry can easily go north of $1 million. Behrooz Torkian, 39, and his wife, both physicians, landed a jumbo loan this summer after being turned down three times in prior years, allowing them to buy a three-bedroom cottage-style home in Los Angeles for $1.645 million with a 20% down payment. “We thought we would get a lot less house for what we had,” he said.
Dr. Torkian said offering a larger down payment helped this time around, but he also sensed that lenders were more receptive. The couple, who have two young children and are first-time buyers, got a 30-year fixed loan carrying a rate of 3.75%. “It came a little as a surprise that the loan was so easy to get approved,” he said.
While loans below the conforming threshold far outnumber jumbos, their rate of growth these days is slower. Here are some reasons why.
- First, plenty of borrowers seeking loans backed by Fannie Mae and Freddie Mac have been thwarted by stringent lending standards that arose in response to the housing bust. Meanwhile, more lenders, particularly smaller ones, are returning to jumbo lending. Also, the floor for a jumbo loan fell in some high-cost areas last fall. In Los Angeles and New York, for example, the definition of a jumbo dropped to $625,500 and up from $729,750 and up. With the lower floor, a loan of $700,000 would now be a jumbo loan.
- Second, lenders are responding to pent-up demand. When the market tanked, those on the upper price tier were better able to put their house hunting on hold, says Stan Humphries, chief economist for Zillow. Home-value drops were less steep on the high-end as a result: The top third of homes have fallen 21.8%, while the bottom third dropped 32.7%, according to Zillow. Now “they are trading homes with one another again,” Mr. Humphries said.
- Third, investors and others swooping in to buy homes at low prices—often in all-cash deals—have driven down inventory and increased asking prices on the lower end of the market. But brokers and others say competition is growing for luxury homes as well, pushing up prices and forcing buyers to seek out jumbos to keep pace.
“A lot of wealthy individuals who can afford those loans were able to come back into the market quickly once there was an avenue for those mortgages,” says Robert Dorsey, chief data/analytics officer for Oxford, Miss.-based FNC.
While tight credit remains an obstacle for the average buyer, jumbo buyers are sometimes finding the opposite. Capital Economics Ltd., in a recent research note, found that jumbo loans are going to borrowers with credit scores as low as 700, compared with 720 or higher previously, and that financing has generally reached $2 million from a previous upper limit of $1.5 million. “If they are willing to make jumbo loans knowing they will carry the credit risk themselves, it’s a sign of their confidence in the housing recovery,” says Paul Diggle, a property economist at Capital Economics.
Potential roadblocks could derail jumbo growth, but few see the market returning to its dark days. “I can’t see why access to mortgage credit at the jumbo level would get worse,” Mr. Humphries said. “I think it’s going to get better.”
The 30-year fixed-rate jumbos are being “portfolioed” by the big banks.
Bank of America is quoting 30-year jumbo fixed rates at 3.50% with 1.125% points (3.619% APR) – our guy is Thomas Walters.
We have had terrible luck with Wells Fargo being way too conservative – not recommended.
Mutual of Omaha Bank is getting into the game, and will have a 30-year jumbo fixed-rate in the next week or two. They are the easiest on qualifying – contact: Susan.Stotler@mutualofomahabank.com