Luxury Hawaii Home Buyers – It is Cash Or ???
I just finished 3 days in San Jose, CA at the California Association of REALTORS meetings and had quite a learning experience. It is quite apparent that REO’s are dominating most of the California market and that liquidity in Jumbo Loans (over $729,000) has almost totally wiped out the luxury portion of the market. Since no secondary market really exists to buy Jumbo Loans, these days most lenders (except a few banks and private lenders that hold the loans as portfolio loans) are no longer lending in this segment of the market.
Why this is important to Hawaii (and more specifically Maui) is that in recent years both the median and average sales prices of homes and condos have hovered near $1,000,000. Statistics this year for both segments of the market have shown between 20 and 30% price declines for both medians and average prices. Look for this to continue. With about 80 to 90% of the volume of sales now driven to the areas of saleable loans (under $729,000), this will continue to shift the averages lower.
The net result is that suddenly, sellers (who have to liquidate their high end second and third homes in Hawaii) are now faced with a very tough situation. If you paid over $1,000,000 for a luxury Hawaii home or condo in the past couple of years, buyers for your unit really have very few financing options. It is cash or ???
Interestingly, there have been few high end foreclosures on Maui, yet…the next year will begin to tell a different story as ARM resets start to show up, and some cash strapped owners will choose to loose their 2nd or 3rd home instead of their first home elsewhere.
Look for some bargains on beautiful high end homes on Maui in the next 6 to 12 months.
Jeremy Stice, R(S)
October 4, 2010
There is no question that it has become increasingly difficult to obtain Jumbo financing no matter how qualified of a buyer one is, but there is hope. I did close a property with a $1.1 million loan earlier this year for a buyer purchasing their 6th. home. If I recall my buyer clients locked in at around 5.5% at one point with 20% down. There are programs out there for extremely well qualified individuals. Interested in talking to a couple lenders who are offering jumbo financing? Please let me know and I would be happy to direct you to some of these individuals.
Jeremy Stice, R(S)
October 4, 2010
There is no question that it has become increasingly difficult to obtain Jumbo financing no matter how qualified of a buyer one is, but there is hope. I did close a property with a $1.1 million loan earlier this year for a buyer purchasing their 6th. home. If I recall my buyer clients locked in at around 5.5% at one point with 20% down. There are programs out there for extremely well qualified individuals. Interested in talking to a couple lenders who are offering jumbo financing? Please let me know and I would be happy to direct you to some of these individuals.
David Buck
October 4, 2010
It’ll be interesting to see when these ARMs do reset. We discussed this in one of my CE classes today. Good news is when they do reset, most likely the rates are lower than when they originally locked in… Bad news is if rates go up, get ready for more luxury REOs!
David Buck
October 4, 2010
It’ll be interesting to see when these ARMs do reset. We discussed this in one of my CE classes today. Good news is when they do reset, most likely the rates are lower than when they originally locked in… Bad news is if rates go up, get ready for more luxury REOs!
Katie Minkus, R(BIC)
October 5, 2010
We’ve seen a number of luxury REO’s on the Big Island – the good news is they typically get scooped up by a wise buyer quickly. The bad news is the prices are low enough that it resets subsequent buyer expectations, and often I find myself explaining to buyers that just because there was one distressed sale in a neighborhood, doesn’t a market make… It’s difficult for many people to understand that most sellers in this price range don’t “need” to sell, and thus will wait for a buyer to come along and pay their price. Thus, the pent-up demand for luxury REOs.
That being said, the vast majority of sales in the $1M+ range this year have been cash. Financing is definitely an issue, even for people with perfect credit, a good debt/credit ratio and money in the bank. Certainly, we’re living and working in turbulent times…
Katie Minkus, R(BIC)
October 5, 2010
We’ve seen a number of luxury REO’s on the Big Island – the good news is they typically get scooped up by a wise buyer quickly. The bad news is the prices are low enough that it resets subsequent buyer expectations, and often I find myself explaining to buyers that just because there was one distressed sale in a neighborhood, doesn’t a market make… It’s difficult for many people to understand that most sellers in this price range don’t “need” to sell, and thus will wait for a buyer to come along and pay their price. Thus, the pent-up demand for luxury REOs.
That being said, the vast majority of sales in the $1M+ range this year have been cash. Financing is definitely an issue, even for people with perfect credit, a good debt/credit ratio and money in the bank. Certainly, we’re living and working in turbulent times…
Zack Diener
October 5, 2010
You all make interesting points. It definitely has become more difficult to qualify for a jumbo loan. As a lender, I can tell you that “jumbo” money is there with just about every bank in town and the programs are in place as well. In fact most banks are now offering 30yr fixed rates for around 4.75% with anywhere between 20% and 30% down depending on the loan amount (and bank). We go up to $2 million with as little as 20% down and $5 million overall with 25-30% down.
In my experience, the biggest obstacle for borrowers in the jumbo price range is the requirement to fully document their income. Most of my jumbo buyers share one thing in common…they are self-employed. Anyone who has ever been self-employed knows it is not always easy to document all of your income.
As Tracy mentioned, the secondary market for mortgage loans (of any size) no longer exists. What does this mean you ask? There is no short answer to that question but for the purposes of this conversation it means that lenders no longer offer “stated income” loan products. These products, originally designed for self-employed borrowers who typically have a difficult time documenting all of their income are now seen as exotic, high risk loans that helped bring down the mortgage industry and then the entire world economy. These loans were popular among jumbo borrowers until the secondary market came to a screeching halt in August 2007.
To David’s point, many of these borrower’s opted for a ARM product that may reset soon and while they may have qualified originally under a “stated income” loan product, they will undoubtedly find it more difficult if not impossible to refinance into a fixed loan in today’s market.
As the tax year draws to an end, my advice to anyone who finds themselves is in this unfortunate position is to have a good long talk to your CPA and then your lender to determine if it will be possible for you to show enough income to qualify under today’s full documentation lending guidelines for the amount (loan balance) that you currently owe.
For those of you who have no problem documenting your income, you should have a relatively “easy” time getting a jumbo loan at a historically low interest rate! Just be prepared to provide all of your documentation for income and assets…
Zack Diener
October 5, 2010
You all make interesting points. It definitely has become more difficult to qualify for a jumbo loan. As a lender, I can tell you that “jumbo” money is there with just about every bank in town and the programs are in place as well. In fact most banks are now offering 30yr fixed rates for around 4.75% with anywhere between 20% and 30% down depending on the loan amount (and bank). We go up to $2 million with as little as 20% down and $5 million overall with 25-30% down.
In my experience, the biggest obstacle for borrowers in the jumbo price range is the requirement to fully document their income. Most of my jumbo buyers share one thing in common…they are self-employed. Anyone who has ever been self-employed knows it is not always easy to document all of your income.
As Tracy mentioned, the secondary market for mortgage loans (of any size) no longer exists. What does this mean you ask? There is no short answer to that question but for the purposes of this conversation it means that lenders no longer offer “stated income” loan products. These products, originally designed for self-employed borrowers who typically have a difficult time documenting all of their income are now seen as exotic, high risk loans that helped bring down the mortgage industry and then the entire world economy. These loans were popular among jumbo borrowers until the secondary market came to a screeching halt in August 2007.
To David’s point, many of these borrower’s opted for a ARM product that may reset soon and while they may have qualified originally under a “stated income” loan product, they will undoubtedly find it more difficult if not impossible to refinance into a fixed loan in today’s market.
As the tax year draws to an end, my advice to anyone who finds themselves is in this unfortunate position is to have a good long talk to your CPA and then your lender to determine if it will be possible for you to show enough income to qualify under today’s full documentation lending guidelines for the amount (loan balance) that you currently owe.
For those of you who have no problem documenting your income, you should have a relatively “easy” time getting a jumbo loan at a historically low interest rate! Just be prepared to provide all of your documentation for income and assets…