Market for high-priced homes, jumbo mortgages begins to thaw

By Renae Merle
Washington Post Staff Writer
Saturday, April 24, 2010

Since the collapse of the housing market, home buyers trying to a secure mortgage of more than $729,750 have faced higher interest rates and tough new standards to even qualify for a loan.

Now the market for these "jumbo" loans is starting to thaw. The average interest rate for a 30-year fixed-rate jumbo mortgage stood at about 5.8 percent this week, according to HSH Associates. That is near historic lows and down significantly from the height of the financial crisis, when it was near 8 percent.

"Things have been steadily getting better," said Keith Gumbinger, vice president at the research firm.

But the market is still far from normal, he said. The disparity in the rates offered for jumbo mortgages and traditional ones (which also carry rates near record lows) remains wider than normal, Gumbinger said. "Normalcy is returning, but I would by no means say it has returned," he said.

Bigger loans, for now

Before the housing market collapsed, jumbo loans were those for more than $417,000. But Congress temporarily increased that limit for high-priced parts of the country, including the Washington area. Through at least the end of this year, jumbos start at $729,750. They are still considered the most difficult to get.

Jumbo loans are too big to be backed by Fannie Mae and Freddie Mac, the mortgage-financing companies, or insured by the Federal Housing Administration. Lenders usually bear the risk of making these loans, instead of transferring the risk by selling them into a secondary market, so they are cautious about offering them. That has helped shrink the number of loans available.

Traditionally, jumbo loans account for 18 to 20 percent of mortgages issued, but by 2009 they were only 5 percent, according to Inside Mortgage Finance, a trade publication.

The home-sales market remains depressed by historic standards, but it has shown signs of improvement, said Lawrence Yun, economist for the National Association of Realtors. Sales of homes worth $750,000 to $1 million increased 39.6 percent in February compared with the same period last year, according to NAR data. Sales of homes worth $1 million or more rose 35.5 percent. But jumbo mortgages still made up just 2 percent of the lending market.

"The upper end of the market is starting to move. It was completely frozen last year," Yun said.

It has also started to improve in the Washington region, real estate agents said. During the first three months of the year, 146 homes sold for $800,000 or more in Montgomery County, up about 22 percent compared with the same period last year, according to data from the Metropolitan Regional Information Systems, the local multiple-listing service. In close-in Northern Virginia, sales above $800,000 were up more than 50 percent from January through March. They were up 20 percent in the District.

For some local buyers, a shortage of homes on the market is a more significant problem than obtaining a loan, said Jeff Brier, a principal with the Martin & Jeff Group of Coldwell Banker in the District. It is not uncommon for million-dollar homes to attract more than one bidder now, he said.

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