From the Daily Bulletin
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 Thursday while sitting in his board room chair, tapping his finger authoritatively on the table. "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.
Here's the skinny, according to the 28-year street-smart real-estate veteran: An appraiser usually pegs a property's value based on similar values in the neighborhood, and foreclosures have been dragging neighborhood values down. But 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.
Here's the kicker: 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."
7 comments:
Mr. Norris is correct about the potential impact of the new appraisal rules, but he should read the actual rule changes, then base his argument on facts...
http://www.freddiemac.com/
singlefamily/pdf/hvcc_746.pdf
L_Thek_Onomics
On one hand, a buyer could gain some additional leverage in a lower purchase price, not to mention the real reason and that is some additional "cushion" for the lender.
On the other hand, such almost ensures an ongoing downward spiral, as when the house closes at a lower price, it will push the median down even more. I could see it really kill some neighborhoods in the aspect that even those already there "who will stick it out" might just pack up and leave too when they're paying a 500k mortgage on a house worth 200k instead of 300k.
What is the difference between "market value" and "home value" and how is it determined?
The difference is they now are required to use the neighborhood median price. Rather than value a home based on comparable of similar size and quality. A few real dogs can drag the median of the area down. If you have a nice home or a larger home those dogs will hurt ya.
I see. So if you have a smaller home it may help you.
An improvement in home prices suggests the U.S. property market may be recovering, said Robert Shiller, a professor of economics at Yale University in New Haven, Connecticut.
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