LA’s jumbo mortgage problem

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The credit squeeze could be particularly bad news for high-cost housing markets like Los Angeles, because the cost of jumbo mortgages has spiked sharply in recent days -- robbing buyers of purchasing power at a time when many buyers already feel the market is overpriced.

The result: buyers and sellers, already having a hard time meeting in the middle, could be driven further apart, which means further slowing of a market that’s close to stalling out.

From The Wall Street Journal via Manhattan Beach Confidential: ‘Lenders were charging an average 7.34% for prime 30-year fixed-rate jumbo loans yesterday, according to a survey by financial publisher HSH Associates. That is up from an average of about 7.1% last week and 6.5% in mid-May. ... The higher costs for such loans will put further downward pressure on home prices in areas where homes typically bought by middle-class people can easily cost $500,000 to $700,000.’

That’s LA, folks.

CNNMoney: ‘Wells Fargo, one of the nation’s biggest mortgage lenders, raised the interest rates on it 30-year, fixed-rate, non-conforming (AKA jumbo) loan to 8 percent last week, up from 6.875 percent. Other lenders followed suit and more are likely to join them. ... The rate jump means the monthly bill for a $600,000 mortgage would hit $4,403, compared to $3,942 previously, an increase of $461. Jumbos are loans of more than $417,000.’

Thoughts? Question: Does this put downward pressure on prices, or does it just cause houses to sit on the market longer?
Hat tip: Jonah, Manhattan Beach Confidential
Photo Credit: LATimes