(hat tip to Nathan)
The Inland Valley Daily Bulletin.
Matt Wrye, Staff Writer
Created: 04/25/2009 06:21:38 PM PDT
http://www.dailybulletin.com/business/ci_12228714
“Economists and real-estate agents are counting on homeowner affordability to stabilize California’s housing market mess, but Bruce Norris couldn’t disagree more. Owner of The Norris Group, a Riverside-based real-estate investor and financial broker for other real-estate investors, Norris says it’s not what a home shopper ‘can afford to pay’ that’s key in turning this market around – it’s what they’re ‘willing to pay.’”
“He’s bucking the popular belief that a 5 percent or 10 percent price drop on Inland Empire home values will usher in the market’s bottom. Think 20 percent or maybe more, he said. ‘It’s because of the 1004 MC form,’ Norris said. ‘It’s very dangerous.’”
“This ‘market conditions addendum’ for appraisers to use – enforced April 1 by the mostly government-owned mortgage investors Fannie Mae and Freddie Mac and loan insurer Federal Housing Administration – might thrust the economy’s fragile mortgage system from its depressed state to something much worse, Norris argues.”
“The new addendum says a house must be appraised at the neighborhood’s median home value instead of market value, as long as the home is located in a downward market and as long as the mortgage is a Fannie Mae, Freddie Mac or an FHA-backed loan. Median home values in certain neighborhoods are taking a beating these days because their prices are skewed by dozens of foreclosures – which means nonforeclosed homes are slated to get hit by a double-whammy price-depreciation phenomenon.”
“Norris has already seen values stated on local home appraisals drop 20 percent in the past 3 1/2 weeks. ‘If this plays out, things will get much worse,’ Norris said. ‘We’re going to devalue the loan portfolios of almost every lender in the state of California. This could crash the system – it really could.’”
This post doesn’t make sense I thought there was an “Upturn Predicted ‘this year or next’”.
Bottom callers unite! Eventually you’ll be right. Just make sure to call early and often.
Wow. We could actually start to see what REAL market values are? Just because of a form?
Not sure that will come to pass (although there are some who say–and I agree–that it would be more painful short term, but get us out of the woods faster if we had more reality in pricing for the current market).
I think just less Fannie/Freddie loans will be made–REOs are already not “selecting” those types of bids, if they can help it, from what I’m reading/hearing.
And any new neighborhood with “dozens of foreclosures” was very likely uber-over-hyped to start with. (Bressi and Jenae come to mind.)
Hmm. The REO I’m in escrow for here in Riverside just appraised at ten grand over what I’m paying for it. However, I actually think it’s probably really worth twenty or thirty grand more (hence the reason I bought it-I got lucky and found a house with a poorly done listing that undersold the property).
Median home values in certain neighborhoods are taking a beating these days because their prices are skewed by dozens of foreclosures – which means nonforeclosed homes are slated to get hit by a double-whammy price-depreciation phenomenon.
This is nonsensical. Norris is acting as if foreclosures are some outside contaminant that’s trucked into a neighborhood, destroying the house prices. That’s absurd. Dozens of foreclosures don’t “skew” a neighborhood’s prices, they demonstrate the neighborhood’s prices.
Hey Jim,
I checked into FHA loans. They are a complete disaster waiting to happen. It’s a speculator’s dream: all of the upside and none of the downside — and you can get $697K at 5% fixed for 30 years.
Story and details here.
Oops, choked the link. Here it is.
http://wcvarones.blogspot.com/2009/04/fha-is-new-subprime.html
I’m beginning to see a problem in that some homes in very poor markets (Vegas, Phoenix) are actually underpriced. These areas are not Detroit or Cleveland where whole sections of the city are abandoned. They are living neighborhoods with lots of families and children. (Mostly Mexican, but some White families that have been there for 30-40 years.) Some of these homes are now selling for less than those original owners paid 30 years ago. Rather than punishing these areas further, loans should be granted on these homes. On a 30-year note, the payment is MUCH less than rent (probably less than the electric bill), and perhaps a 120% loan should be granted to allow for rehab. Instead, I am seeing 97% FHA loans going to 2002 and newer homes that stand to lose significant value in the next year.
IRE, less than 30 years ago? Vegas seems priced 2001-2002 at worst. 30 years ago would be reasonable houses in 5 digits.
IRE,
The market is working. You just want to falsely prop up values. Let people buy at “underpriced” valuations and the market will decide if prices should go up or down.
Yes, I am talking about homes at less than car prices. Again, these are not rust belt neighborhoods where really cheap homes are readily available. In Vegas yesterday a house went for $28k, and a comp sold for $75k in 1995. That house would rent for $750/mo. I’m not necessarily complaining – myself and people like me are buying these and creating good income streams. However, I am concerned that lenders have the power to dictate the direction of a neighborhood. Think about the people who paid $75k in 1995. What will this do to the neighborhood? Should the FHA be trying to save newer neighborhoods by putting taxpayers on the hook for $145k when more than 50% of those homes could still be subject to foreclosure? And someone who loses a job may not be able to support a payment on that mortgage?
Shadash, funny how you don’t seem to think the market was working when prices were rising/up higher than you liked. 😉
Where in Vegas did a house sell for $28k? Was there actually a liveable house, or did it look like the Vista dump or worse? If it was a teardown, I can see $28k, but if the house only needed moderate repairs or better, I’d be shocked. Also, how was the neighborhood? Was it deep in the hood or in the middle of nowhere?
Aztec,
I understand where you’re coming from and you’re probably right. In my head I differentiate the housing “boom times” from the current market by the amount of funny money floating around.
In Vegas you can buy a house for under 100k. True, but most people living/working in Vegas don’t make a large amount of $$$ so 100k is a realistic market value.
The houses going for 30-40k in Vegas are in the older, mostly Mexican neighborhoods. This particular house is very livable though and had a Lexus ES300 and Chevy Tahoe parked in the driveway.
This is the official Fannie Mae announcement regarding this policy change.
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0830.pdf
it does NOT say that “a house must be appraised at the neighborhood’s median home value instead of market value”. That would have been a complete and utter nonsense. It merely requires appraisers to provide a report that details the dynamics of median sale prices in the neighborhood over the preceding 12 months.
28k house, in good condition that can rent for $750? Really?
There is something wrong with this equation. Either the 28k is off or the $750 a month is off.
Can someone please post an MLS listing of a $28k house and a similar house on Craigslist renting for $750? If these numbers are true, I’m ready to be a slum lord in Vegas, Escondido, Oceanside, Detroit, wherever.
My guess is that a $28k house needs about $50k in maintenance minimum. I’m also guessing what used to rent for $750 in Vegas two years ago is not renting for that amount today. Of course, you can buy a shack and post it on Craigslist for $750 in rent and wait, and wait and wait… I see that all of the time now in SD. That is a great investment!