At the beginning of March, the Greater Baton Rouge Association of Realtors Web site listed 110 homes for sale from $750,000 to $4.9 million. Sounds like plenty of pricey estates to the average working Joe, but experts in the high-end housing market say their business is still recovering from an ebb in demand.
“It’s dead,” appraiser Tom Cook says. But since that’s not an effective marketing message, “All the agents will tell you how great everything is. They can tell you there’s probably more activity with people looking. Jumbo loans are hard to get. A lot of people are not offering them.”
Data from the Capital Region Multiple Listing Service indicate the numbers of listings and sales at $750,000 and up through early March are down from the preceding years, but the average sale price is up. Thirty-three homes were listed, and seven were sold, from Jan. 1 through March 3, with an average sales price of about $1.01 million.
Thirty-five homes were listed and nine sold during the same period last year, with an average price of about $974,700. And 39 were listed and eight sold during the same time in 2008, with an average price of about $946,400.
Local bankers and real estate agents say the mortgage meltdown that struck the Southwest U.S. and Florida didn’t hurt the Capital Region nearly as much, and that includes the high-end market. But there was certainly an impact at the upper end despite the relative lack of depreciation.
“Appraisals have been an issue these days,” says Quita Cutrer, an agent at the Highland Road office of Burns and Co. Realtors. “The banks want to make sure that their investments are good. They’re scrutinizing the appraisals more than they have in the past. They don’t want to overloan on a property.”
Still, she says, there are at least five homes under contract for more than $1 million each in the MLS region, including four in the Country Club of Louisiana. One bonus of working with high-end buyers, she says, is that foreclosures are less of an issue than with buyers who make smaller down payments.
“There are very few of them that will fall through from financing issues,” she says of upper-end loans.
That’s contrary to Bloomberg’s report last month that delinquent jumbo loans nearly tripled last year to almost 1 in 10. Cutrer says the latest 30-year jumbo rate she received from JPMorgan Chase was 5.875% to 6%.
For people who need a mortgage to secure a ritzy private palace, Investar Bank President/CEO John D’Angelo says the down payment can be 25% for a jumbo loan, one that exceeds $417,000, as determined by Congress.
“A couple of years ago, people would go as high as 90%, sometimes even higher,” he says. Further, he says, jumbo-loan rates used to be the same as conventional rates but have risen, albeit to within a percentage point of conventional rates. “Over $600,000, $700,000, that starts to add up,” he says.
D’Angelo also says appraisals are causing issues for high-end buyers who build custom homes, a process that can take a couple of years. In that time, the initial appraisal for a home with a total investment of $4.5 million, including lot cost, might drop to $3.2 million, which can be a shock to buyers. “We’re alerting them, ‘Don’t be surprised.’ People expect large numbers,” he says.
He also says banks have taken it upon themselves to ensure buyers have a stable income and can stay the course for the entire loan. “Stuff needs to be verifiable income, not just, ‘What do you make?’” he says.
Jim Smith, vice president and capital adviser for JPMorgan Private Wealth Management in Louisiana, says jumbo loans are easier to get now than six months ago, when the mortgage crisis had evaporated the secondary market.
“There was no one to sell them to,” he says. “We hold our jumbo mortgages in-house. We have tripled our mortgage-lending operation on a national basis to accommodate the great opportunity we see in this market.”
Regarding new construction, he says the market has not been kind to people who wanted to craft their dream homes in the past year and a half, although costs have dropped somewhat.
Still, he says: “Construction costs are higher than the current adjusted price of existing homes. We see the price per square foot for construction down considerably from levels two years ago, but still not enough to make them attractive against the existing homes on the market.”
Ann Mullins, an agent with C.J. Brown Realtors on Perkins Road, focuses on areas 5 and 6 on the metro real estate map, which includes Bocage, University and City Park lakes, Moss Side Lane and Highland Road. She says about 90% of high-end home sales she sees are in or close to those areas. Although data shows that upper-end sales are down, she says: “I’ve been personally very busy. Whether we can convert [our prospects] to purchasing a home, I’m not sure.
“We do see some offers on properties that are less than we would hope to see. There are people out there trying to buy at a greatly reduced price, but that doesn’t mean it culminates in a purchase.”
Despite overall economic worries, Mullins senses a solid 2010. “We typically have a very good spring and summer market,” she says. “Last year, we did not have that. Maybe they don’t believe the sky’s falling, like they did last year. A lot of people have held on to their money and are now ready to spend. The prices have adjusted somewhat.”
Looking forward, D’Angelo says a recent shift away from refinancing, which was notable in the last four months, toward signing on the dotted line shows increased market confidence. In terms of the secondary market, he says people are dabbling in packaging jumbo loans again, despite requirements that buyers put more money down.
“I get concerned about businesses laying people off, the state cutting employees, talk of a double-dip recession,” he says. “We’re not just going to wake up one day, and everything’s going to take off. The recovery will be gradual over the next year. I’ll just take stability at this point.”
