|$1.9M for this Santa Monica Beauty|
There should be no surprise in the following article from CNBC. The wealthy are wealthy because they know how to manage their assets and liabilities. Even with mortgage up over a point since the Fed started hinting loudly about winding down their asset purchases, the reality is that we may not see mortgages under 6% again in this century.
So the rich are getting their mortgages while the getting is good. Next year when mortgage rates are 6% and going higher, the rest of the population will panic and start buying, refinancing, and using leverage to increase their portfolios. Here is the article in its entirety. There was too much of value here to edit. There are some video and other notes of interest where this post appears on CNBC.
By: Robert Frank | CNBC Reporter and EditorEven as the rest of America pulls back on mortgages, the wealthy are going on a borrowing binge.
New data from Realtytrac show that wealthy homebuyers are ramping up their use of mortgages to buy homes. In July, 46 percent of buyers purchasing homes ranging from $2 million to $5 million used mortgages—up dramatically from 27 percent in 2012. With purchases of $1 million to $2 million, the use of mortgages jumped to 63 percent from 49 percent a year ago.
The mortgage spree by the wealthy stands in stark contrast to the rest of the country, which has seen mortgage activity decline with rising rates. Nationwide, 40 percent of the homes sold in July were purchased with cash, up from 31 percent a year ago, according to Realtytrac.
Housing economists and luxury real estate brokers say the mortgage economics for the wealthy are different than for the rest of the country. While rising rates make borrowing and buying less affordable for everyday homebuyers, looming rate hikes act an incentive for wealthy borrowers, who use loans as financial tools.
As rates start to rise, housing experts say, the wealthy who were waiting on the sidelines to buy or borrow decide to jump in. They are scooping up the cheap capital before it gets more expensive.
"With mortgage rates picking up, some of these folks decided to get off the fence and take advantage of the low rates," said Daren Blomquist of RealtyTrac. "With the wealthy it's more of a financial decision."
The borrowing spree by the wealthy reflects a growing divide in the mortgage market between the wealthy and the rest of America. Interest rates on jumbo mortgages—loans over $417,000 in most areas and over $625,500 in higher-priced areas—are now lower than the rates for so-called conforming loans below those levels. It's highly unusual for jumbo loans to be cheaper than conforming loans, since conforming loans are traditionally backed by government agencies. Banks are cutting their mortgage staffs amid a big fall in applications and refinancing.
But uncertainty over the government's role in the mortgage market has added to the upward pressure on conforming rates. What's more, many banks see wealthy borrowers are more attractive borrowers. And many banks use mortgages to wealthy clients as a way to win their wealth-management and investment business.
Of course, cash remains king at the very top of the real estate market. More than three quarters of buyers of homes priced at $5 million or more used cash for their purchases in July—up from 56 percent last year.
Olivia Hsu Decker, a top luxury real estate broker in San Francisco, said the super-wealthy today have plenty of excess cash and some don't like to bother with the complicated and time-consuming mortgage process. And buyers can often get a better sale price if they pay in quick cash rather than waiting on a loan.
"Mortgages are not easy, even for the wealthy," she said. "They'd rather just write a check."
She added, however, that many of the wealthy get mortgages after they purchase, to take advantage of the cheap money.
Other brokers, however, add that the surge in mortgage rates and activity among the wealthy has driven a corresponding jump in sales—especially for second homes. Sales in the Hamptons were the highest ever in the second quarter, totaling $1.15 billion. Sales in Palm Beach, Fla., Aspen, Colo., and other high-end locales have also remained strong.
But some housing economists wonder if the high-end borrowing binge is temporary.
"The first half of the year was about pent-up demand and rising rates," said Jonathan Miller of Miller Samuel, the appraisal firm. "A lot of that has played out so I think you could see some decline in mortgages. But that will be determined by how fast rates rise."
The Jumbo mortgage market is certainly alive and well in Santa Monica, Beverly Hills, West Los Angeles and Bel Air. If you are looking for a jumbo loan, we can help. Call Bill Rayman at 310-424-8635