Back in July, I analyzed housing market activity in Jumbo mortgage price zones based on a New York Times article describing how borrowers found it difficult to gain approval for a non-conforming loan. In July, I noted that the homes exiting the market (Listings Absorbed) were doing so at price levels just below the $729k non-conforming loan limit because of the difficulty borrowers were experiencing in getting non-conforming loans approved. Looks like the the trend haven’t changed much.
Here’s the ugly truth: If you’re selling a home that requires $730,000 loan with a buyer who has 20% for a down payment, it’s more difficult to sell your home compared to a home that requires a $729,000 loan to a buyer that has only 5% to put down and qualifies for a conforming/FHA loan.
Here’s the data:The graph below trends only the top 25% of active homes – the most expensive 25% of available homes for sale (“top quartile“) – in the Altos 20-City Composite:
- Median Ask Prices for the top 25th percentile are rising. This can be partially explained by the Price of Listings Absorbed – homes exiting the market are well below the Median Ask Price, and have been consistently climbing since the Spring, thus causing a change in the mix of homes available for sale. However…
- Median Prices of New Listings (new sellers hitting the market) are falling. These new sellers offer immediate visibility on the current market conditions, as they are basing their pricing decisions on local activity. This should offset some of the mix changes in the Median Ask Price from higher exit prices.
- The Altos Research Market Action Index™ is starting to climb, which illustrates the higher absorption rates at the lower price levels shown above. This would mean that more homes are exiting than entering the market at the shown price levels, also explaining the rise in the overall Median Ask Price in this price quartile.
An article this week from CBSnews.com reports that mortgage rates for non-conforming loans were higher than conforming (FHA qualified) loans. Just to be clear on this, borrowers with 80% Loan-to-value ratio that have the personal wealth and credit worthiness to borrow more than $729k have to pay MORE for a loan (by 1.1% according to the CBSNews.com article, referencing TotalMortage.com’s rates table.) Huh?
This would further explain why homes for sale that require a non-conforming loan are sitting on the market longer. Check out how homes in the top quartile have a significantly longer time of market:
End result: Lower home price sales to higher risk borrowers. Nice job Washington. You really hit it out of the park on this one.