Luxury Home Sales Surging in California
California was among the states hit hardest by the recent foreclosure crisis, but is currently leading the nation in terms of a recovery in the high value home sales market. With interest rates on jumbo mortgages at their lowest level since 2003, buyers are taking advantage, driving a recovery in California’s luxury home market after a three year slump.
The jumbo mortgage rate is currently at about 5 percent, and people are noticing and beginning to look around for deals in the high-end market. With so much uncertainty as to when rates will go back up, buyers with enough cash to cover down payments are getting into the market to avoid missing out on an ideal opportunity: low interest rates and low prices.
At the height of the recession, jumbo mortgages all but vanished. With lenders’ portfolios saddled with bad loans, they were no longer to take on the risk of such mortgages. Investors sought the safety of government backed securities and avoided any involvement with the private lending sector. These factors all contributed to a virtual halt to the high priced homes market in California since right after the recession began.
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Now, as banks regain capital and look to start lending again, they are aggressively looking for jumbo mortgage candidates. Applications for jumbo loans have risen for the last several months, even as rates continue to drop. A typical jumbo mortgage borrower will have a high income, a stable employment situation, and adequate cash on-hand to pay a down payment of 30 to 40 percent typical with such a loan. Although lending criteria have become much more difficult since the crash, most people in the market for a jumbo loan have relatively little difficulty qualifying. Generally speaking, those with credit scores in the 700 range and enough cash to cover a down payment are approved almost automatically.
Sensing the trend, sellers have also become more willing to drop asking prices on properties that have sat on the market untouched for months. The overall increase in activity in the luxury home market should prove to stabilize prices in the sector. Since jumbo loans are really only attainable by those with excellent credit, banks are eager to extend these loans, finding them both safe and very profitable. More and more banks are re-entering the jumbo loan market, creating an atmosphere of high competition in the market. The result of this competition will be lower rates and a surge in high-end home sales. It will be interesting moving forward to see if the current uptrend in high priced home sales will spread throughout the rest of the nation and lead the way for a broader based housing recovery