Each week, I talk to quite a few agents who work here locally and I can’t remember a time when the market has been this “strange”. It isn’t uncommon to hear something similar to these two statements below from two agents – who are both great agents:
In the Phoenix market, houses are selling like crazy. Every home seems to have multiple offers and it reminds me of 2005!
And from another agent:
In the Phoenix market, everything is dead. Nothing is selling in my normal target market — way, way too many months of inventory still.
Which agent is right?
They both are.
As Steve pointed out, the inventory of homes for sale in the “jumbo” price range is large and probably growing. The inventory of homes for sale in the entry level price range is small and probably shrinking. In the sub-50k range (yes, there are plenty of houses selling right now for less than $50,000) I wouldn’t be surprised if there aren’t an average of 5-10 offers on each house available for sale.
And, as Steve also pointed out – one of the possible main reasons for the stagnation in the higher-end home market is the lack of available jumbo loans financing options for anything that is over $417,000 (the conventional loan limit in Maricopa county).
The Jumbo Loan Market: Investors Have Been And Will Continue To Be Burned
To understand the reason that investors currently are not very eagar to offer financing for Arizona jumbo mortgage loans, one must look at what has recently happened to investors holding Jumbo loans. According to a recent research piece done by Barclays Capital, jumbo fixed-rate loans have not been “performing” – meaning they are starting to default in higher-than-expected numbers.
Barclays’ research on existing portfolios shows that, “The deterioration is uniform across collateral characteristics. The pace of deterioration is faster than comparable Alt-A collateral, though it remains lower than Alt-A in absolute terms. There has also been a large increase in prepays for the refi eligible population.”
Assuming that Barclay’s research is correct — this means that you reasonably shouldn’t expect to see conforming/jumbo spreads to narrow soon for most investors. Historically, jumbo mortgage rates exceeded conforming loan rates by roughly .25 basis points, but today, it is not uncommon to see jumbo mortgage rates exceed conforming loan rates by 200 basis points or 2 percentage points.
The rate at which current jumbo loans are turning delinquent has more than doubled from just six months ago. Jumbo loan performance is worsening at an increasing pace.
Many of the lenders who have been major players in the jumbo market have pulled out – or even went completely broke. For example, Thornburg Mortgage Inc. announced earlier this month that the company planned to seek Chapter 11 bankruptcy protection. At one time, Thornburg was the second-largest independent mortgage company in the U.S.
Even While Some Investors Are Being Burned, Others Are Jumping In
One of the great things about America is the concept of “one mans trash is another mans treasure”. Even though many investors are being burned by their Jumbo portfolio, others are trying to enter and expand into the jumbo market.
Joining the jumbo mortgage game is the First Internet Bank (First IB) of Indiana.
According to Blown Mortgage, First IB had this to say:
“We are confident there is unmet demand for jumbo loans in today’s market, particularly sine the housing stability plan recently announced does not include relief for these borrowers,” said David B. Becker, President and CEO at First IB. “We are filling a void with an attractive jumbo mortgage loan product at a highly competitive rate. Of course, we are going to scrutinize these applications carefully, borrowers still need to be credit worthy and the property value must be sustainable.”
The jumbo mortgage loan product First IB introduced earlier this week is an adjustable-rate mortgage carrying a fixed rate as low as 5.375 APR with no points for five years. With $543 million in assets and customers in all 50 states, First IB is the first state-chartered, FDIC-insured institution operating solely via the Internet. First IB, an Equal Housing Lender, also offers conforming loans and home equity loans along with other financial products.
What All This Means To You If You Want A Jumbo Loan In Arizona
Jumbo loans are available, but they are harder to get. If you are interested in a jumbo loan for purchasing a house it will be much easier than if you want to get a jumbo loan and take cash out of a property. Each individual situation is different – so be sure to work with a loan officer who has experience in the jumbo market. Can you get a jumbo loan in today’s market?
Maybe.
But it won’t be easy.
Phoenix Mortgage Rates April 17 2009
Comments on this entry are closed.