By Joanne Drilling | The Business Journals
As home prices skyrocketed during the pandemic, it drastically expanded the market for jumbo mortgage loans — the high-dollar mortgages that exceed standard limits set by the Federal Housing Finance Agency.
But between higher interest rates, economic uncertainty and lenders growing cautious over changing capital requirements, the market for jumbo loans is a mere sliver of what it was during 2020 and 2021.
According to a recent analysis of LendingPatterns data by The Business Journals, jumbo loan origination volume cooled from $753 billion in 2021 to $497 billion in 2022 — a nearly 34% decline. Lenders also doled out about 285,000 fewer jumbo loans, which represented a 41% decline.
The average jumbo loan amount increased from $1.09 million in 2021 to $1.22 million in 2022.
Analysts say the trend is continuing in 2023 as overall mortgage applications dwindle — thanks in large part to high interest rates.
But there are also some factors that are weighing more heavily on the jumbo market than the mortgage sector at large.
Erica Adelberg, chief mortgage-backed securities strategist for Bloomberg Intelligence, said the jumbo mortgage market has continued to cool in 2023.
“Between interest rates rising and a lack of bank lending issuances, (the jumbo loan market) is less than half of what it was pre-pandemic,” she said. “And it’s a twentieth of what it was at the peak of the pandemic.”
Between 2020 and 2021, jumbo loan securitization more than doubled as home prices soared, according to an analysis by CoreLogic, with 2021 the highest point since 2005.
Adelberg doesn’t see the situation improving in 2024. Refinancing is at an all-time low and many prospective homebuyers continue to be plagued by affordability issues, as well as low inventory of existing homes on the market. There are efforts to change that in many cities, but it won’t be a short-term solution.
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