Clearly the 1st quarter sales for the Boston luxury real estate market were abysmal - you can read all about that in my post Boston luxury condo market slows to a crawl. 

But is that starting to change now?

Super jumbo loan demand rises

There are a couple of factors affecting the luxury market, one of which was written about in the Boston Business Journal today.  In the article "Mega mortgages jump as banks underwrite wealthy clients", it describes how many private wealth management banks are offering attractive super jumbo mortgages as a way to entice wealthy customers to switch banks, not just for the mortgage business but also for wealth management services.  Some of these banks are offering $1M+ loans for rates as low as 4.5% to attract new business.  Since the secondary market for jumbo loans has dried up completely, all of these banks have to hold the loans in their own portfolio, but if a bank is willing to do that, then they can offer great loans that apparently are attracting more borrowers recently.

The article discusses the demand recently for these loans:

The market for a $6 million mortgage is not dead in Boston. In fact, demand for mega mortgages — $1 million and up — is on the upswing.

Bank and real estate executives say their wealthy clients still remain wary of the economy’s sharp needles, but acknowledge that with the Dow Jones Industrial Average up nearly 2,200 points over the past three months there’s growing confidence about the direction of their fortunes. That new confidence is liberating wealthy homebuyers to borrow again.

The article goes on to discuss BNY Mellon specifically as an example of this:

Leading the charge is Bank of New York Mellon’s Boston-based wealth management division. The company’s in-house mortgage operations in Boston cater to the nation’s top 1 percent of wealth and have put up record numbers this year.  During the first five months of 2009, BNY Mellon’s jumbo mortgage activity is up 32 percent on a dollar volume basis, compared with the year-ago period. Gorman said Boston is one of the best markets.

But is the Boston luxury sales market showing more activity?

Banks are seeing more mortgage activity but is it carrying over into sales activity?  As you can see in the quick summary below, sales are still stagnant in Boston, so apparently not (yet?). The chart shows the number of units (condos and single families in Boston) that went under agreement in a given month.  That's usually a better indicator of how busy the market was in a given month (as opposed to closed sales which can lag the market by a couple months in most instances).

There's been a slight increase in activity over the past couple months, but not a real significant difference.  Plus, there are currently 411 active Boston condos and single families that are listed over $1 million on the market now.  That equates to a 15 month supply of inventory over $1 million, well above the market for what would be considered a "balanced market".  Somehow that inventory needs to work its way off the market.

In Massachusetts statewide, the story is a little different - there definitely has been a more significant uptick in market activity the last couple of months.  From 95 under agreements in March, activity jumped to 169 in April and 180 in May.  So activity has nearly doubled which makes sense given the bank mortgage data.  A hopeful sign, with a caveat that activity is still down versus 2008. 

As statewide $1M+ sales pick up will Boston follow suit?  I suspect they may, if we continue to see more optimism about an economic recovery later this year.  For the wealthy buyers of $1M+ homes, the stock market is coming back and jobs are probably more secure now than a few months ago giving them the confidence required to make a purchasing decision on a new home.

Do you have questions?  What are your thoughts?  Comment below!

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