Anyone looking for a rebound in the housing market might want to look up—up in price that is. Sales of high end housing are returning with a near vengeance after two years of double digit declines.
"We're seeing a revival in the high-end housing market," says Lawrence Yun, chief economist at the National Association of Realtors (NAR). "It was so depressed, particularly last year, but it's really improved. There's much greater sales activity on upper end homes now."
While the rest of the housing market is still in the doldrums, high-end housing is one of the few bright spots in what many predict will be a dismal spring season.
In February this year, sales for homes priced at $1 million or more increased 38 percent nationwide from a year ago, according to the NAR. The Northeast is up 49 percent alone, while the West is up nearly 35 percent.
What's creating the high end 'boom' is a trifecta of lower interest rates, bank lending and consumer confidence.
"Rates are down for jumbo loans," says David Adamo, ceo of Luxury Mortgage, a mortgage banking firm based in Stamford, Connecticut. "Banks are seeing benefits in making these types of loans and are doing more re-financing now. I also think more people feel confident in the economy at the higher incomes."
Rates for jumbo loans—loans for mortgages that exceed $417,000—have shown a major decline in recent weeks.
A 30 year fixed jumbo is currently at 5.58 percent for a million dollar loan, while last year at this time it was almost 7 percent. Unlike conventional rates which are tied to treasurys, jumbo rates are a specialty product with rates set primarily by lenders.
"Banks are doing jumbo loans now at lower rates because they see it as a secure way to make a profit these days," says Bob Walters, chief economist at QuickenLoans.com. "Jumbo rates are always higher than conventional loans, but banks feel like they can have the lower rates now and still make money from those in the jumbo loan market as more home buyers take loans."
While banks are lending more these days, that hasn't stopped them from being extra cautious over who gets their money. Much like conventional loans, lenders want buyers to give a full bottom line when it comes to personal finances.
"Underwriting (assessing a buyer's eligibility for a loan) is still very tough," says Steve Habetz, president of Threshold Mortgage, a lending firm in Westport, Connecticut. "I had one buyer, who had enough money for a large downpayment, go through the loan process and he had to justify why his dividends were down one year while his investments were up. He got the loan but he had to go through hoops to get it."
"Jobs are on the line for these underwriters," adds Mary Cassidy, a licensed associate broker at Bronxville Ley Real Estate in Westchester County, New York. "I had one bank officer tell me that if everything wasn't just perfect on the loan application, someone could lose their job."
While interest rates for the bigger loans are falling, consumer confidence seems to be rising for those in the higher income brackets. It disappeared as the economy slumped—at least when it came to housing.
"People are not as uptight as they were a year ago," says Habetz. "It seems as if they are more comfortable in thinking the high end housing market is not collapsing. Home values have stabilized and it's been a matter of following the leader. One person sees others buy or sell and they join in. That's been happening."
And as Wall Street tickers move higher, so too do the number of potential buyers. "Sure, with bonuses and stocks going up lately, that's helped the upper housing market especially where I am," says Cassidy. "However, we're also seeing non-Wall Street types coming in as well."
However good the sales numbers may be, there are signs that high-end housing is not completely out of the woods yet.
Conventional rates are already making slight upticks as the Fed discontinued its mortgage backed securities buyback program—which helped keep rates lower. Banks could raise rates for jumbo loans if they feel the market weakens and housing prices decline even more.
"There's improvement for sure but you still have to have a lot of money for a down payment to get a loan and it's not clear that prices have reached bottom," says Quicken's Walters. "Interest rate increases could slow things down. We probably need more time to tell if high end housing is really back."
More time is needed to say if any part of the housing market is really in a recovery. Sales for homes worth $500,000 or less are still in flux across the country as struggles grow over increasing foreclosures from job losses—and a slower but continuing fall in housing prices.
But for those who contend a high end housing rebound is here, expectations are that the upside will work its way down.
"I think the impact of high end housing will be broader for the whole economy and help at all levels," says Luxury Mortgage's Adamo. "Banks will benefit because they'll be seeing more cash and putting it to use and they'll be making more loans. Home buyers will need products and services so they'll be spending money. Call it trickle down, if you will, but I see it happening."