Most expensive homes now even pricier, courtesy of ‘jumbo’ mortgage trends

Thursday, September 20, 2007 at 1:14am

Mortgage rates for home loans of $417,000 and higher — called “jumbo” loans — are up by an average of 1.25 percentage points over rates several months ago, local brokers say.

When combined with the current, relatively high level of unsold housing inventory in that price range, industry members say sales of Middle Tennessee’s most expensive homes — particularly those that were recently constructed — are in a noticeable slump, compared to previous years.

Richard Exton, principal appraiser at Manier and Exton, Real Estate Appraisers, said the number of “jumbo” loan homes on the market here makes up a small percentage of all available inventory. But the dollars represented by those homes represent a significant portion of Middle Tennessee’s real estate market.

“To some degree, it’s going to have an impact,” Exton said. “It’s a trickle-down effect, a move-up market. The people who buy [those houses] are usually selling something at a lower price.”

Nationally, the housing market in many American cities is experiencing turbulence, as home values fall, sub-prime loans roll over and credit options constrict. Nashville’s market is somewhat insulated from these larger economic conditions, industry members say — home value growth has continued slowly and steadily, and job and population growth fuels the real estate market.

Some of the most significant changes local buyers will notice as a result of credit constriction is the increase in interest rates for jumbo loans. Cathy Cowan, president of Freeman Webb Mortgage Corp., said at Wednesday’s 2007 Nashville Mortgage Summit that rates for jumbo loans are up to an average of 7.5 percent, from 6.25 percent several months ago.

Considering the selling prices of the homes involved, that interest rate jump can amount to a significant expenditure change for buyers. Financing local homes at other price points, Cowan said, is primarily “business as usual” for lenders.

Local builders and real estate agents say the rates contribute to the surplus of homes at that price range currently on the market. In terms of new construction, Greater Nashville Association of Realtors President Richard Courtney said Wednesday that there is currently an approximately one-year supply of jumbo homes on the market in Davidson and Williamson counties, compared to a four-month supply of homes at other price points. Markets are considered in balance, Courtney said, when a six-month supply is present.

The conditions amount to a true “buyers market,” Courtney said. But for sellers — particularly builders of new homes — the situation can be problematic, according to Exton.

“Most of the [local] builders in that price range are small. They build [about] five houses a year,” Exton said. “To have something sitting in inventory unsold for that period is hard for them, because they don’t have the strength that a national builder would have.”

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