- Internationally, "devaluation" is everywhere, and it's a good reason to get your money out of there and over here.
- The state of the top of the housing market is an important local indicator.
- The ongoing housing recovery, at last mostly free of distressed sales, is appreciating bottom-up, little or no froth at the top.
- Jumbo mortgages are in an anti-bubble. Jumbo underwriting is far tougher on credit, income, income stability and appraisal.
“Silly season” is late summer, and April Fool’s is still three weeks away, but Bloomberg and Vanity Fair have published tales of distress among vendors to the ultra-high-net-worth crowd.
A Manhattan apartment found no takers at $45 million, so the developers have split it into three units at better price points.
The aggregate price is the same — $6,000 per square foot. Roughly thirty times the per-square-foot cost of an ordinary detached home.
This is not an elitist joke. Believe it or not, there are two serious aspects to stories like this. The first is the state of the world, and the second the state of a neighborhood possibly close to yours.
The state of the world
The world outside the U.S. is a mess. Different messes in different corners, but the most common problem overseas for anyone with money: Their government is likely in a sustained effort to make its money worth less. “Devaluation” is everywhere, and a good reason to get your money out of there and over here.
Another widespread problem out there: a deal tends not to be a deal, or stays a deal only if you stay in the good graces of the local potentate. A lot of money has been getting out of Russia for a long time. China, too, but a lot more lately — $100 billion per month. Add most of the “emerging world,” and the commodity-producing states to the list of escapees.
Destinations are in short supply. Switzerland has been a favorite safe-haven for more than a century, but there’s only so much money you can pack into a small place.
America and the British Commonwealth are the favorites for one overwhelming reason: legal systems in which a deal stays a deal, especially titles to property — the very best titles to land in the world.
The state of the top of the housing market in your local neighborhood
Outside these global-city wealth-attractors, in places as mundane as Denver or Chicago or Dallas or Atlanta, the state of the top of the housing market is an important indicator. Bubble markets tend to blow off from the top, an effervescing froth usually assisted by brainless credit. In the resulting bust, the whole market compresses, top-down.
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In healthy expansions, appreciation pushes, bottom-up. Lower-priced homes get yanked off the shelf, and competition and scarcity work together at the next level up and then next, but the top may not get hot until near the end of the cycle. Willie Sutton said he robbed banks because “That’s where the money is.” In housing, the low end is where the most buyers are.
The ongoing housing recovery, at last mostly free of distressed sales, is appreciating bottom-up, little or no froth at the top.
There are crazy places — Silicon Psychosis in technology nodes around the country, and aforementioned international havens — but the top end nationally is compressed in part because of a reverse-bubble.
Jumbo mortgages are in an anti-bubble. Below the jumbo threshold, we’ve got easily available loans with less than 5 percent down; above it, 20 percent is the speed limit.
Jumbo underwriting is far tougher on credit, income, income stability and appraisal.
It’s not a problem if you have cash. But history has no cash bubbles.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.
