I wrote this piece for Condo Vultures about the topic.

http://bit.ly/lP7O1

Obviously, there’s a lot of things going on in residential – it’s close to 90% of the overall RE market by volume and when you make a pronouncement about a market as a whole, there will always be sectors or locations that lag or outperform. The high end market is still shot right now, and has been bottomed for a while, and may never recover to previous activity levels but the low end market would experience an all out boom were someone to provide more liquidity for smaller home loans, bank statement income verification programs and Class B condominiums.

All that said, essentially, we’re at the bottom of the residential market right now.

My market research (which has not taken into consideration the condo market) has found that, on the whole, there is a great dichotomy between those homes yielding conventional mortgages below the 417k mark and those yielding jumbo mortgages above the 417k mark.

Sales of homes in Miami-Dade have jumpstarted for those in the lower to middle market range as a a result of standardized lending which allows lenders to automatically and immediately sell off conventional mortgages to federally backed institutions like Fannie and Freddie.

(What this does to the government in the long run is irrelevant to how it currently effects the housing market.)

For those seeking to purchase a home that will yield a jumbo or super mortgage, i.e. one over the 417k mark, finding a lender willing to lend (regardless of your credit) for more than 70% LTV has been difficult, if not near impossible. The reason: the government will not guarantee purchase of these loans and …suprise, suprise…you cannot sell this mortgages on the private market because Wall Street isn’t buying mortgage backed securities.

This has shrunk the buyer’s pool — i.e. the demand — in what was a previously grossly expanded buying field. Supply and inventory are way up. No longer can a person purchase a million dollar home with 50k down. What has become required is a 300k down stroke to secure a mortgage on the home. This has certainly weeded out the pretenders and that is good for the long run, but it has also forced some qualified purchasers to wait a bit longer before they can amass and reasonably relinquish their own equity into a home.

Another heavy yoke around the jumbo market is that investors have sat on the sidelines as well. Putting 30% down on a home as a 3-5 year investment is probably unwise, as correctly pointed out in your post.

Also, 3 bedroom homes are not selling like they used to. When the market was good, you could buy a starter home, make some money and flip it in a few years, using the profits to get you into a more expensive home. Now, small families who might outgrow a smaller home are reticent to purchase one because they are fearful that they won’t be able to profitably sell (or sell it at all) once they outgrow it and are ready move into a larger house. The thought is better to rent for 3-4 years and buy the big house when ready, rather than get stuck in a small house you cannot sell.

Investors would be smarter to get into a conventional mortgage market by purchasing homes in the lower to mid market range that have a quicker turnover and smaller down payment investment at the outset.

Despite this, homes on Miami Beach, (more than) typically selling for amounts that yield jumbo mortgages have moved surprisingly swiftly this summer, which may be a result of the confluence of a few events: lower mortgage rates, the ease of certain lenders over the summer, typical rise of summer-time home sales.

The real evidence will most likely come this fall and into early 2010, when many housing credits offered by the government come to an end and where home sales are typically slower. I predict we will see more of a decline over the next 6 month period into mid-2010 in the jumbo mortage markets.

But, if lenders start to responsibly lend at 80 LTVs, we could see a pick up.

My analysis: It is a good time for investors and purchasers to buy in low to mid markets, but still time for a hold off in the higher end enclaves of Miami-Dade. It’s time for Lenders/Owners to drop their prices.