U.S. Mortgage/Housing Market Has Split Personality
Posted by Larry Doyle on August 11, 2009 11:52 AM |
To speak of the United States housing market in singular terms would be a huge mistake. The different regions of the country have their own housing dynamics. The strengths and weaknesses within the local economies have a huge impact on the strength or weakness of housing.
All this said, there is no doubt that the number 417 has the greatest impact on housing in the United States. Why and how? 417k is the cutoff for individuals looking to receive a conforming mortgage. Above that level, individuals enter the realm of the Jumbo market where rates are appreciably higher and credit standards are significantly tighter. Additionally, Jumbo product is not typically eligible to be underwritten or purchased by Freddie Mac or Fannie Mae. That restriction was waived and Freddie and Fannie have purchased some Jumbo product, but it has had no meaningful impact on the dynamics within the Jumbo space. Overall, the 417k level remains an enormous line of demarcation.
That line of demarcation is further defined by the ability to modify loans. Loan modifications for Jumbo mortgages are significantly more challenging to accomplish. On top of that, mortgage servicers are now under ENORMOUS pressure by Uncle Sam to produce increased numbers of mortgage modifications. Where is Uncle Sam targeting? Conforming mortgages.
While market analysts may believe housing is turning, they are not looking at the total picture. The Jumbo market remains under real pressure while the conforming market is showing signs of stability. Under the heading of ‘a picture speaks a thousand words,’ high five to our friends at 12th St. Capital (the leading mortgage broker-dealer on Wall Street) for providing an overview of the housing market in Los Angeles. One can see the ‘split personality’ based on sales volumes between the downtown neighborhoods and those in the upper incomes. Please click on the map to view year over year sales volumes in respective Los Angeles neighborhoods. A few miles makes a world of difference.
Would welcome insights and perspectives from people in other regions of the country on the split personality of their local housing markets as well.