Market improves in November, giving hope to upper end markets

Home sales jump as fixed mortgage rates improve, helping both the real estate and mortgage industry in the month on November. The challenges facing the housing markets have been well documented and there has been a full court press to try and bring some stability to home prices across the country. The high end market has been under pressure for the last two years as they face multiple challenges including a lack of move up buyers and limited financing options for consumer with jumbo home loans. This has resulted in a grid lock of high value properties sitting on the market, waiting for the real estate eco system to begin to function normally again.

The backlog of foreclosed homes in the real estate inventory has been a large challenge for the real estate markets. Home foreclosures tend to sell at values between 25-50% lower than comparable resale homes. This has triggered a dramatic slide in home prices across the country, forcing home owners who would have wanted to purchase a larger home out of the market. Combining the limited equity with a shortage of financing for loan amounts greater than $417,000 has put the upper end markets on ice.

The market may be starting to turn the corner and help position the upper end marketplace. Home sales have steadily improved over the past four months, spurred by first time home buyers taking advantage of up to $8,000 in government tax rebates. These buyers have entered into the greatest buyers market in the last fifty years as depressed home values and historically low mortgage rates are making house payments extremely affordable. The opportunity to purchase depressed real estate sent both existing and new home sales surging in the month of October. As buyers enter into the market at the lower price points, the supply/demand balance of inventory begins to improve. This factor will play a critical role in helping to stabilize prices and allow for move up home buyers to start purchasing larger homes.

The rebalance of home inventory is a long ways from ideal for the market. There is still a large inventory (and growing) of foreclosed and bank owned homes on the market. The upper end markets are also desperately awaiting a return of private investors into the secondary mortgage market to return some financing options for jumbo home loans. There remains a significant shortage of investors aside from the Federal Reserve purchasing mortgage bonds, which greatly limits options for larger loans and places a significant pressure on the pricing of these loans, which has a negative impact on this market.