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While it’s quite clear that there has been steady market improvement during the past year, there is still a missing piece of the puzzle for homes priced above $1,000,000.

Now let me be clear, there are some large lenders that have been coming back into the Jumbo Loan market (above $729750 in the Bay Area), however pricing and strict guidelines including a minimum of 20% down, make it difficult for buyers. And if buyers are having a tough time buying, then sellers will have a tough time selling.

Immediately after the mortgage melt down of 2007 the market for Jumbo loans virtually vanished….. the markets became risk adverse, essentially eliminating the secondary market for the resale of  jumbo loans.  In other words, if a lender were to make jumbo loans they would have to hold it in their own portfolio and at the time, banks didn’t have much interest in holding loans with a stigma of high risk. 

This graph depicts the “rate spread” between conforming and jumbo loans. During the past two years the spread between conforming loans and jumbo loans grew from an “historical” .375%, to well over 1.50%.  That spread began to narrow in late 2009 as some large banks like Bank of America, Wells Fargo and Citi cautiously re-entered the jumbo market.

The lack of a secondary market for jumbo loans has a lot to do with the drop in the median price of homes….if the average buyer finds jumbo loans difficult and expensive with high down payment requirements they tend to stay out of the million dollar plus home market. 

Take a look here at how the number of Jumbo Loans has decreased since mid 2007.

On the supply side, only those buyers that must sell put their home on the market and on the demand side there are fewer buyers, so the number of high end sales has dimished.

The fed is the secondary market for conforming loans.  Whether the fed continues to fuel the secondary market for conforming loans after March 2010 remains to be seen.  In my opinion, real stability won’t return to the housing market until the capital markets regain confidence in the housing sector without support from the fed.  As market confidence grows, we should see investment capital return and a secondary market for conforming and jumbo loans reestablished.

A viable secondary market for both loan segments is vital to the overall health and vitality of the housing market.

As can be seen in the latest Bay Area Market Activities Reports, Bay Area housing inventory is at a low point.  There is strong competition for well presented homes priced to the market in the bay area. Since there is a limited supply of above million dollar priced homes on the market, sellers are well advised to price strategically and do all recommended pre listing improvements including staging.  Homes that are presented to sell at an attractive price bring in buyers and multiple offers are being seen even in the higher price ranges.

Buying or selling a home is serious business.   In these complex times, I am always available to answer your questions or discuss you concerns.  Simply call, text or email me for a prompt response.

Now, more than ever buyers and sellers will benefit from the advice and guidance that an experienced REALTOR® can provide. If you are in the San Francisco Bay Area, I invite you to take a look at our Resource Center, www.AboutBayAreaHomes.com. There you will find links for active home listings, including bank owned and short sales, home loan information,  market activity reports, home seller strategies, staging and decorating, a suite of 19 calculators, plus my book, “Let’s Make a Deal, The Insiders Guide to Buying and Selling Real Estate” and more. Of course I am always available to discuss your real estate or mortgage related questions or concerns, just call, text or email me for a prompt response.

Russ Boyd and his team professionally assist buyers, sellers and homeowners in the Peninsula Communities of the San Francisco Bay Area. They serve clients in San Mateo, San Francisco, Santa Clara, Alameda and Contra Costa counties. Licensed as a Real Estate Broker by the California Department of Real Estate, 01264240.