Home Buyers Forced to Change Tactics

The credit crunch has turned $417,000 into the magic number for home buyers shopping for mortgages.

Rattled investors have become reluctant to buy loans for more than that amount — known as jumbo mortgages — and that in turn has pushed some lenders to raise interest rates. Caught in the middle are potential home buyers who are getting walloped by higher rates or shut out of the market.

The phenomenon is particularly significant in Washington, where half the homes sell for more than $417,000. Here, home buyers are figuring out how to adapt to the new circumstances by making larger down payments or splitting their purchase into two loans to dodge higher rates. Others are sitting tight until the rates go down.

The course they take can have deep implications for the mortgage industry, the housing sector, and by extension, the economy. If too many potential jumbo-loan borrowers wait it out, chances are the excess supply of homes on the market will swell, further dragging down prices. Home values fell in 15 of 20 large metropolitan areas in the second quarter from a year earlier, according to a report yesterday from S&P/Case-Shiller. They fell 7 percent in the Washington area.

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By Dina ElBoghdady

Washington Post Staff Writer
Wednesday, August 29, 2007; Page D01