Signs Of Economic Recovery : The Jumbo Market Leads Housing Forward

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When looking at housing data, it's the month-to-month data that matters most to homebuyers. Monthly data is where you spot the trends that determine whether home prices are rising or falling; whether the market is improving or fading. By contrast, annual data is more geared at economists in search long-term trends.

That said, buried in September's Existing Home Sales report is an interesting year-over-year pattern. In stark contrast to early-2010, luxury home sales are now leading the market.

Luxury Homes Recovering; First-Time Homes Flailing

For homeowners with property worth $1 million or more, the real estate market is improving.  There's a number of reasons for this, and most of them are consistent with an economy in recovery.

To make this argument, though, we must first make a very important assumption; that Americans buying homes worth $1,000,000 or more fall into one of four categories:

1. Holder of a large amounts of assets which makes annuity payments
2. Corporate-level executive with large salary
3. Highly-commissioned salesperson
4. Owner (or part-owner) or a highly-grossing business or practice

I make these assumptions because, as a loan officer, I know them to be mostly true. For a homeowner to gain approval on 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 business spending is up 22 percent.

When businesses buy, corporations make money and salespersons get commissioned.

As one example, The Wynn in Las Vegas is remodeling 2,716 hotel rooms. That's a lot of purchasing power and a lot of workers in the economy will earn bigger paychecks because of it. Bigger paychecks means more confidence in the future and a greater willingness to buy a new home.

This scenario is repeating in different industries, in different parts of the country.

Jumbo Mortgage Rates Aid The Luxury Home Markets

Coincidentally, luxury housing is benefiting from the return of the jumbo mortgage. After all, it's a lot easier to buy a home when there's financing for it.

Today, jumbo mortgage rates for ARMs are way down, and financing is available in the 30-year fixed and 15-year fixed arena, too.  Furthermore, on the strength of the market, downpayment requirements are down.

For example, last year, you may have needed 30% downpayment to get a competitive mortgage rate for $1 million or more.  Today, the downpayment is 20 percent.

It's also getting easier to qualify for jumbos and super jumbos. This may be another reason why the luxury home market is thriving.

Your Bank May Not Offer Jumbo Mortgages

Although jumbo loans are cheaper, not every bank will offer them, or offer them with competitive interest rates.  Shop with at 2 banks before you lock because rate-and-program because fees will vary.

If your bank makes you pay a point,.

Excellent rates can be had without points in the jumbo market right now. And because each point equals 1 percent of your loan size, you could eliminate $10,000 in fees against a $1,000,000 loan.