The current California real estate market is really three different markets...and all are performing differently based on lending dynamics. In the under $500,000, the market is white hot, between $500,000 and $1,000,000, the market is warm, and above $1,000,000, the market is still stalled.Financing is affecting the three markets because of our good friends Fannie Mae and Freddie Mac. Conforming loan amounts have been increased from $417,000 to $729,750 in populous CA counties, but interest rates are higher, and qualifying is more difficult for loans between $417,700 and $729,750. Just ask anyone trying to get a loan right now in this price point. The qualifying is even more strict and rates are even higher for jumbo loans above $729,750. Don't bother asking these borrowers since their reaction will probably be negative.
Fannie Mae and Freddie Mac only buy conforming loans; therefore, less money is being made available for jumbo loans. And since there is no buyer on the secondary market for these loans, banks are VERY hesitant to loan on these properties. It is not clear, however, why conforming loans between $417,000 and $729,750 pay higher interest rates and have tougher qualifying guidelines than loans made below the $417,000 amount.
In the past, all conforming loans had the same interest rates and qualifying guidelines. Unless Fannie Mae and Freddie Mac start treating all conforming loans equally, and the government intervenes on jumbo loans, as it has with conforming loans, we may continue to experience the tale of three markets. If these changes do not occur, then the upper-end market will likely see
prices depreciate even more before this market strengthens.
Before even thinking of buying a primary residence or investment property, make sure you have a solid mortgage professional on your side. Opportunities exist, but you'll need someone working hard for you to expose all that is possible.
