Tell-tale stat: Luxury home owner default rate hits highest level since 1992
About 2.6% of prime borrowers who took out a jumbo loan last year were at least 60 days delinquent -- the highest delinquency rate since at least 1992, Bloomberg News reported Friday, citing data compiled by LPS Applied Analytics.
Jumbo loans typically involve purchases of luxury or larger homes and they carry a higher interest rate than conventional loans. The latter, provided they are not larger than $417,000 (up to $729,500 in high-cost areas, such as New York and Los Angeles), are eligible for sale by lenders to Fannie Mae (FNM) or Freddie Mac (FRE).
Although jumbo loans are larger mortgages, they usually fund home purchases by upper-middle income and rich borrowers, who often have more wealth and higher credit scores. The fact that the jumbo loan payment delinquency rate is at its highest level since 1992 underscores the depth of the housing sector slump and the impact of the recession. Even selected home owners with considerable resources and very good debt service histories are having problems staying current with their mortgages.
Further, the higher delinquency rate for jumbo loans most likely will continue to weigh on median home prices, which have been falling in every region of the United States since mid-2007, accord to the Case-Shiller Home Price Index (pdf). Case-Shiller home price data for January 2008 will be released on Tuesday, February 24, 2009 at 10 a.m. EST.
Median Home prices in a 20-city sample plunged a record 18.2% in November, on a year-over-year basis in, according to Case-Shiller data.
Analysis: Investors should interpret the increase in the jumbo mortgage delinquency rate as bearish for median home prices, the U.S. economy, and the stock market. Although part of the delinquency rise can be attributed to non-owner-occupied investors failing to make payments on speculative real estate projects, a portion of the delinquency rate reflects homeowner stress among upper-income Americans who live in the homes, which does not bode when for big-ticket item and upscale consumer goods purchases -- important components of U.S. GDP.