My Major Concern About the Boston Real Estate Market (Banks and Lenders)
Record-low interest rates have created an unprecedented opportunity for homebuyers. But that’s not how things are playing out on the ground. At least that’s how I see it, as a downtown Boston real estate broker.
Many Boston condo buyers have little chance to secure the cheap financing that headlines and marketers often claim is fueling the residential market this year.
Lenders are being cautious, that’s particularly true in major cities, like downtown Boston, where banks are tightening lending guidelines for jumbo loans — those too large to be sold to government-sponsored entities Fannie Mae and Freddie Mac.
There is a risk that the longer the pandemic goes on, the downtown Boston real estate values may actually drop. And that is not something a lender wants to be giving a mortgage for.
JPMorgan Chase is the most high-profile example of betting against New York City.
In early November, the bank limited jumbo home loans in Manhattan to 70 percent of the sales price, down from 80 percent previously, according to a report by Bloomberg. (A few days later, the bank’s head of consumer lending told investors that the bank is still bullish on other housing markets across the country, and was even loosening some lending criteria as home prices rise.)
Jumbo loans dominate major urban markets, where housing is more expensive. The median sale price of existing homes across the country was $311,000 in September, according to the National Association of Realtors, while the median sale price in Manhattan last quarter was $1.1 million,
Now, Manhattan homebuyers borrowing from Chase must pay at least 30 percent of the purchase price upfront. A down payment of 30 to 35 percent became the norm during the initial months of the pandemic, according to mortgage brokers. That translates to a down payment of at least $330,000 on a median-priced Manhattan home.
What does all this mean for homebuyers? They have to fit a very particular bill to take advantage of the current rate environment.
Lenders are generally looking for several years worth of tax returns; a steady, salaried job in the same industry for at least two years; a high credit score; and highly liquid assets, mortgage brokers say.
But that’s a tall order when nearly 6.8 million people are out of work.
The disparity between homebuyers who can and cannot secure cheap financing may seem minor as the housing market continues its upward run. But some economists and industry insiders are sounding alarm bells that differing access to credit exacerbates stark inequality in America.
If you lost your job during this recession, you’re not going to get approved for a loan. The people that are able to take advantage of low rates [are] the people who have the best credit histories; they have the highest incomes.
This reflects what Wharton’s Wachter described as a K-shaped economic recovery, in which the wealthy bounce back more quickly than lower earners.
Wachter noted that an uneven recovery in the housing market poses broader problems.
“What we’ve seen in my research is that the inability to buy into a community with jobs is keeping mobility down and keeping people from moving to markets where there’s job growth,” she said. “That’s going to hurt the overall economy.”