At first glance, the July Existing Home Sales report was pretty terrible. Sales volume fell to 15-year lows, home supplies jumped 40%, and the press is beating the point to a pulp. (it should be mentioned that Columbus fared far better than much of the rest of the country as our sales volume fell by 28.6%, while home supplies jumped by just 12% percent, Central Ohio July Home Sales report).
However, depending on your home’s price tier, the news may not be so bad. The real estate market is a tale of two price tiers.
Luxury Homes Recovering; First-Time Homes Flailing
For affluent homeowners with property worth $1 million or more, the real estate market improved in July. There’s a number of reasons for this, and most of them are consistent with “an improving economy”.
To make this argument, though, we must first make a very important assumption; that individuals buying homes worth $1,000,000 or more fall into one of four categories:
- Holder of a significant asset which makes annuity payments
- Corporate-level executive with large salary
- Highly-commissioned salesperson
- Owner (or part-owner) or a highly-grossing business or practice
I make these assumptions because, as a Realtor specializing in luxury home sales, I know them to be mostly true. A homeowner will not be approved for a mortgage without verifiable income and a $1,000,000 mortgage requires roughly $250,000 in adjusted gross income, assuming ordinary debts and deductions.
Now, although the economy is short on jobs and tight on credit, business spending has been improving for months. The Fed has been highlighting this fact in its FOMC press releases, and just last quarter, business spending jumped 22% and when businesses buy, corporations make money and salespeople get commissioned.
For Americans that don’t directly benefit from business spending, Existing Home Sales data is worsening, relative. Sales volume in the “starter home” categories are down significantly from June. While this is largely the result of the post-tax credit normalization, it is also attributable to the loss of many W-2, salaried jobs and overall uncertainty in this segment of the economy.
Homeowners with property worth less than $1 million are seeing sales volume slip and inventory (supply) rise. Home prices may start to lag within this price range until these increased business sales begin to trickle down and the economy gains additional momentum.
Jumbo Mortgages Are Aiding The Luxury Home Markets
Coincidentally, the luxury housing market is benefiting from the return of the jumbo mortgage market. It’s a lot easier to buy a home when there’s financing available for it and the cost of borrowing is low.
Since mid-May, jumbo mortgage rates on ARMs have come way down, and financing has opened up in the 30-year fixed and 15-year fixed arena. Downpayment requirements are also loosening.
Just six months ago, you might have needed a minimum downpayment of 30% to get a competitive mortgage rate on a purchase of $1 million or more. Today, it’s 20 percent.
Furthermore, underwriting guidelines are loosening around credit scores, asset requirements, and loan purpose.
Overall, it’s simpler to qualify for jumbo mortgages than in recent quarters. This is another reason why the luxury housing market is thriving. These savvy buyers realize the prices of homes are down, as is the cost of buying on credit and these financially astute consumers are rushing to take advantage of this once in a lifetime opportunity.
Your Bank May Not Offer Jumbo Mortgages
Jumbo loans are available, but that doesn’t mean that every bank will offer them, or assign them competitive interest rates. If you’re in the market for a jumbo loan, make at least two calls before you settle on a particular rate-and-program because fees will vary.
You should be able to get excellent rates without points in the jumbo market right now. Remember — each point equals 1% of your total loan value. Or, in the case of a $1 million loan, a $10,000 fee.
If you, or someone you know is considering Buying or Selling a Luxury Home in Columbus, Ohio please contact The Opland Group. We offer professional real estate advice and look forward to helping you achieve your real estate goals!