In San Diego County, jumbo loans may hold the key.

My friend, Jim the Realtor, ran a little stats post which looked at down payments for recent Carmel Valley and Carlsbad sales. He did this in response to an article in our local daily rag of tree origin (here is the online version) in which a remark was made suggesting that investors are twelve deep waiting to scoop up bargain homes.

Hat tip to Jim. I found the down-payment angle brilliant. (Why didn’t I think of that?) It is something we haven’t looked at before here. So, without a clue of what I might find, but with a sense based on our own client interactions and experiences that money is talking in this market, I attempted the same thing for Scripps Ranch.

The following is a graph showing the distribution of down payment percentages for all closed sales in Scripps Ranch over the past thirty days, both attached and detached homes. Keep in mind that information is deemed reliable but not guaranteed. In other words, my source was the Sandicor Multiple Listing Service and tax records; as such, the data is subject to human error on a variety of fronts.

Down Payments

As always, I was looking for a normal distribution; alas the spike at the left end of this graph messed things up – these are all of the FHA loans which required only 3.5% down. Otherwise, the chart underscores that fact that conventional financing without a minimum of 20% down is elusive. This wasn’t the biggest take-away for me, though, but first a quick summary of the high points.

  • There were four cases of 100% financing. Three of these occurred at the lower price points (so, a leap might be that we are looking at investors here), while one was for a nearly $1 million sale.
  • 14 of the 41 properties, or approximately a little over one-third, were short sales or bank-owned offerings. By property type, about 57% of attached homes fell into the distressed categories, while only about 14% of the detached homes were short sales or bank-owned sales.
  • Of the 6 FHA loans, only one involved a distress sale. In other words, competition for the “deals” is fierce, and given a choice, the banks will follow the money every time.
  • If you discount the FHA financings, only two “loans” were made with a less than 20% down payment; one was 15% and one was zero down, but the zero down was shown as “private financing” (think “Mom and Dad”).
  • The median down payment was 25%. Times, they are a-changin’.
  • 30% of the closings involved a down payment of 30% or more; 25% involved down payments of 40% or more.

Now, for the biggie. Not a single one of the loans in the last thirty days in Scripps Ranch involved a jumbo loan – not one. In every case, the loan amount was below the $697,500 upper tier conforming loan limit for San Diego County. It appears that the larger down payments were not so much that well-funded investors are throwing cash at an opportunity-laden market, but that buyers are doing what it took to keep their loan amount securely in conforming loan land. The corollary is that if they can’t, they aren’t buying.

What does this mean? Well, to me it means that the relative popularity of the lower-priced homes is as much a factor of affordability of the loan as it is anything else. This does not bode well for sellers of homes at the higher price points, because the pool of buyers running around with a quarter of million dollars or more in liquid reserves to put down on their purchase is a rather small one.

True, there are some competitive jumbo loan products out there, but not of the 30-year fixed rate variety. And while competitive 5 and 10-year ARMs are options, they are not, psychologically speaking, crowd pleasers at the moment. Saying “ARM” at the dinner table will likely have someone reaching for a bar of soap.

In Boise, this is admittedly a non-issue; in our high cost market, it is a huge one. Do larger loans carry more risk? When we were enjoying the 100% financing, stated income days, of course. But now, income has to be documented. Buyers have to have a sizeable down payment – skin in the game. The rules have changed. Lenders have necessarily adopted more responsible, conservative practices. It’s time to start paying attention to the jumbo market again.

In San Diego at least, if we want to truly turn the corner on this housing market, jumbo loans hold the key.

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