The U.S. luxury housing market continues to thrive.
Fueled by move-up buyers and inexpensive jumbo loans, the market for homes over $500,000 has grown rapidly since last year, with homes over $750,000 making big gains, too.
2013 has been a big year for big homes. Next year may show more of the same.
Homes Inventory Fell 25% In 12 Months
Earlier this week, the National Association of REALTORS® published its August 2013 Existing Home Sales report.
The Existing Home Sales report is a monthly report which totals non-new homes sold on a seasonally-adjusted, annualized basis and the number of homes available for sale nationwide; as well as other home resale statistics gleaned from the month prior’s sales contracts.
For example, the Existing Home Sales report lists the percentage of home buyers who purchases homes with cash; the percentage of buyers buying homes in short sale or foreclosure; and the median number of days that sold homes were under contract.
According to NAR, 5.48 million homes sold in August on a seasonally-adjusted, annualized basis — a two percent increase from the month prior and a 13 percent improvement from August one year ago.
Existing Home Sales have reached their highest point since February 2007, a statistic which hints this year’s recovery. The mark is even more impressive when we consider that there are very few homes for sale nationwide, relative to recent years.
Home supplies remain scarce with just 2.25 million homes for sale. This is 6 percent fewer homes from last year. At the current pace of home resales, those 2.25 million homes would “sell out” in 4.9 months.
Home supply of less than 6 months is considered a “seller’s market”.
“Jumbo” Housing Market Booming Into 2013
The housing market bottomed in October 2011. Since then, home values have made slow, steady gains in many U.S. markets. Demand for homes has climbed, supplies of homes have dropped, and prices have increased as a result.
Values have made especially strong gains in the “luxury” market.
As compared to one year ago, sales of million-dollar homes are up 33 percent. In addition, sales of homes in the $750,000-$1,000,000 range are up 39 percent. These gains are a function of the market having more “move-up” buyers, which is a chain reaction borne from a rush of first-time buyers from 2009-2011.
The federal $8,000 home buyer tax credit is still affecting housing today.
Look at how home prices have changed in each of NAR’s tracked price brackets :
- Sales under $100,000 : -14.6% from one year ago
- Sales between $100-250,000 : +8.9% from one year ago
- Sales between $250-500,000 : +24.1% from one year ago
- Sales between $500-750,000 : +29.6% from one year ago
- Sales between $750,000-$1,000,000 : +39.0% from one year ago
- Sales over $1,000,000 : +32.9% from one year ago
Another big plus for the luxury housing market is that jumbo mortgages are exceeding affordable today as compared with conventional mortgages. During some periods in August, jumbo mortgage rates were lower than their comparable conventional counterparts.
Jumbo Mortgage Loans For Home Buyers
The availability of large-sized mortgages has also helped the luxury housing market.
For homeowners, in “high-cost areas” which includes Potomac and Bethesda, Maryland; Alexandria and Fairfax, Virginia; and most of California, for example, Fannie Mae and Freddie Mac will allow loan sizes of up to $625,500.
The FHA and the Department of Veterans Affairs will back even more. The FHA will insure up to $729,750 and the VA has no set lending limit. Note that the FHA’s downpayment requirements are just 3.5 percent and the VA will finance 100 percent of a home purchase.
2014 Conforming Loan Limits are expected to drop. This will make FHA and VA financing more desirable for next year’s home buyers.
Then, for home buyers whose loan sizes still exceed conventional, FHA, and VA loan limits, “jumbo” loans exist. Jumbo loans are typically reserved for borrowers with high credit scores, a downpayment of 10% or more, and verifiable income via tax returns.
Jumbo mortgage rates for adjustable-rate loans can be under 3 percent with minimal fees. Fixed-rate jumbo loan mortgage rates are typically higher.