While record-low mortgage rates aren't doing much to spur regular home sales, the higher end of the housing market is getting a significant boost from the decline in so-called jumbo rates—mortgages of $417,000 and above.
An economy suffering from high unemployment and falling home prices has left many potential buyers unable take advantage of the lower conventional rates.
But it's different for those seeking bigger jumbo loans for the more-expensive homes.
"Sales volume for homes worth more than $1 million across the country are up more than 35 percent from last year at this time," says Walter Maloney, spokesman for the National Association of Realtors (NAR). "Homes between $700,000 and a million are also on the rise by some 29 percent over last year. There's no question that's because of the historic low jumbo rates."
Just how low are the current jumbo rates? Last year at this time, a 30-year fixed jumbo rate was averaging more than 6 percent. It's now at an all time low average of 5.07 percent. And the re-finance rate for a 30 year jumbo is currently at 5.30 percent. A fifteen year jumbo is at the historic low average of 4.68 percent.
The reason for the rate decline is simple, say the experts: banks, which have a part in setting jumbo rates, have money to lend and see the benefits in doing so at lower rates.
"People at the higher incomes are not so much worried about their jobs as others might be. And they have the money to come up with 30 percent down.There is some pent up demand for the more expensive homes. The lower rates are helping release that demand."
"Lenders are getting more comfortable making high end loans these days," says Greg McBride, senior financial analyst at Bankrate.com. "They're using their cash reserves to make the loans and see a profit in having rates lower right now."
Unlike conventional mortgages, jumbo loans by definition exceed the conforming loan limit of $417,000 set by Fannie Mae and Freddie Mac. Jumbo rates are loosely tied to long term treasurys but they are traditionally higher because of the risk involved for the banks in making a larger loan.
But the risk seems worth it, even in today's sluggish economy as foreclosures rise and unemployment remains high.
"People at the higher incomes are not so much worried about their jobs as others might be. And they have the money to come up with 30 percent down." says McBride. "There is some pent up demand for the more expensive homes. The lower rates are helping release that demand."
While banks seems ready to make the bigger loans, they are putting borrowers through the same tough underwriting rules that conventional loan borrowers face.
"Banks are asking for every piece of financial information they can," says Mitchell Hochberg, a consultant and principal at Madden Real Estate Ventures. "They are being very strict on all the paperwork when it comes to home buying or re-financing."
Strict or not, the banks are lending and refinancing jumbo loans at much higher volumes than last year.
"Sales are fairly good right now," says Alan Rosenbaum, president and ceo of Guardhill Financial, a mortgage banker and brokerage company based in New York. "But what's even better this year is the refinancing. We've had significant volume there. I'd say that even getting a half a point now on a jumbo refinance is good with these rates."
Like their conventional brethren, the question over how far jumbo rates will continue to fall remains mostly unanswered. No one can say for sure whether the economy can sustain them if inflation fears force the banks and the Federal Reserve to make lending harder.
However, the question about their rising has a more definitive answer.
"There's no way to tell where rates will really go on conventional or jumbo loans," says Lawrence Yun, chief economist at the NAR. "I do expect them both to remain low. But it's clear to say that if they do go up, it will hurt housing. They aren't the only factor in the housing market. There's the jobs picture and home prices. But having the conventional or jumbo rates go up will definitely not help."