The more I follow this real estate boom and bust, the more I appreciate the idea that the price of a product is determined by how much money is chasing it.

Unfortunately, there isn’t a lot of money chasing Phoenix area homes priced above $346,250 right now.

Jumbo Loans

Jumbo loans in Maricopa County, Arizona are mortgage loans above $346,250. Jumbo loans can NOT be insured by FHA so the lender’s risk is much greater, especially in a declining real estate market. (Each county in the United States has its own limit. The limit can go as high as $729,750.)

For homes under about $346,250, money is still available because those loans can be federally insured.

It’s a different story for jumbo loans and their “jumbo” homes. There is very little new jumbo lending nationwide.

New jumbo lending, which includes refinancing as well as debt for home buyers, totaled $348 billion in 2007, before dropping to $98 billion last year as mortgage companies tightened standards, according to newsletter Inside Mortgage Finance. Jumbo lending slowed in the fourth quarter to $11 billion, or 4 percent of the mortgage market, the lowest quarterly amount since Inside Mortgage Finance started tracking that data in 1990.

So jumbo lending went from $348 billion in 2007 to an annualized rate of $44 billion in the fourth quarter of 2008 and this year it’s probably even lower.

That has gotta put a lot of downward pressure on prices for more expensive homes – there’s perhaps 90% less mortgage money chasing those “jumbo” homes.

Jumbo vs. Conventional Loan Homes

Owners of “jumbo” homes, on one hand, usually have more money than “conventional” home owners so we have seen fewer foreclosures in the more affluent areas and less of the downward pressure that foreclosures put on home prices.

On the other hand, “jumbo” home owners don’t have a government safety net (FHA insurance) to encourage lenders to continue lending in this declining market.

Things are Tough All Over

Until prices of “jumbo” homes stop declining, it’s going to be tough to get a jumbo loan.

Therefore, my advice to “jumbo” home sellers, “Sell ASAP.”

What do you think? Am I off base here?