Jumbo Mortgages & Housing Market Prices

July 15, 2009

by Scott Sambucci

3 comments

A New York Times article earlier this month discussed the increased difficulty of attaining a “Jumbo” mortgage (mortgages that exceed the $729,750 limit set by Fannie Mae and Freddie Mac to qualify as a “conforming” loan.) I thought it’d be interesting to see where the housing market is heading in these price zones.  This isn’t an exercise to suggest that there is a direct cause and effect relationship, but some of the markets trends for home in the “Jumbo” price points are interesting.

Using the Altos-20 Composite (our national composite that tracks the S&P Case Shiller 20-market index), median list price trends by price quartile shows that the top 25% of homes as measured by price are have ticked up in the last few months:

Altos-20 by Price Quartile

However, as we reported in our July 2009 release of our Real-Time Housing Report, this is likely due to a change in the mix of properties available for sale.  That is – new homes aren’t coming onto the market at higher prices, it’s just that the homes that are selling and leaving the market are at the lower price points.  Here’s some proof below – check out the price of the homes leaving the market each week as compared to the median list prices above.

Altos-20 Price Listings Absorbed

In the top quartile, the homes exiting the market have a median price of about $650,000, which is well below the median list price of $850,000 in the top chart.  More importantly, the $650,000 median price of listings absorbed is below the threshold of a “conforming” mortgage and therefore don’t qualify as Jumbo mortgages.  Instead, these home buyers can use a conforming loan to make a home purchase – loans that have all kinds of incentives built in right now.

Want more?  Let’s look at the list prices of new homes entering the market this Spring/Summer (the price of new listings):

Altos-20 Price New Listings

The new market entrants are priced above the price of homes exiting the market, but are also priced below the Jumbo mortgage threshold.  And if we look at the total number of homes exiting the market (“listings absorbed“) each week by price quartile, we see that the least amount of activity is in the top 25% of homes (the blue line):

Altos-20 Listings Absorbed

So what does this mean? Could mean that with the difficulty in attaining a Jumbo mortgage as reported by the New York Times might have a couple of consequences:

  1. Buyers that may have bought a more expensive homes are bargain-shopping while taking advantage of the tax breaks and mortgage products in the conforming market price range.
  2. Non-distressed sellers in this price range may have decided to simply stay out of the market this year.  Why sell your home if you can’t get the price you want or if buyers can’t get the mortgage they need for the transaction?  (This is something I wrote about a few weeks ago when examining total available housing inventory this Spring.)

Whether it’s a cause and effect is unknown, but the numbers are surely showing that the top end of the real estate market is showing the least amount of activity, and what activity there is regulated to the lower end of the range in these price zones.

Here’s a link to the New York Times article that I referenced.

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