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Otis · by **Otis** on Tue May 13, 2008 10:26 am

http://www.startribune.com/homes/buy/18 ... c=y&page=1

As mortgage lenders and insurers shy away from "declining markets," people in some of those neighborhoods are fighting back.

Could widespread designations of entire ZIP codes, metropolitan areas -- even entire states -- as "declining markets" hinder a real estate recovery and hurt minority groups and moderate-income buyers disproportionately? Growing ranks of critics say the answer is yes.

Since late 2007, most lenders, insurers and mortgage investment firms have compiled lists of local markets that they consider to be posing higher risks because housing values are dropping. Within those areas, borrowers are charged higher rates, loan fees and down payments -- costs that can rise significantly when applicants have credit scores below designated minimums.

In some cases, the extra fees can add more than 2 percentage points to the interest rate, and require much higher cash upfront from applicants. At their extreme, declining market designations remove entire categories of real estate from financing eligibility. Some private mortgage insurers, for instance, won't touch second homes or rental home investments anywhere inside large swaths of Florida or California.

Industry estimates of affected ZIP codes range from 8,000 to more than 12,000 nationwide.

<snip>

Corporate Lackey · by **Corporate Lackey** on Tue May 13, 2008 10:47 am

It is a double edged sword. You do have to report it as declining, and of course if you were lending your money, you would want a larger down payment, but that does make it more difficult to purchase for first time buyers (that down payment hurdle) which in turn decreases affordability. It is a vicious circle, but since the markets were artificially inflated in much of the country because of the ease of credit, it is basically a return to normalcy, albeit a very painful one.

I certainly don't have the answer to the problem; of course being labeled a declining market hurts, but it sure seems necessary to me (and of course as an appraiser, you have to call it like it is!).

Edd Gillespie · by **Edd Gillespie** on Tue May 13, 2008 11:15 am

And the problem is further exacerbated by the fact that "declining" is a relative and not an absolute term. So when you assert the market is declining in order to make sense of it you must also say, "as compared to ______." And then there is also the time period to which you refer. There are no standards published that are in wide spread use so the best spinner wins. Decline also depends.

I think the Lackey has it. We are not declining so much as we are becoming normal and the industry seems to lack a description for that.

Back to the emphasis. I do think rating by Zip makes a problem that may not be there. Where do they get their info anyway?

Steve Owen · by **Steve Owen** on Tue May 13, 2008 2:23 pm

Edd Gillespie wrote:So when you assert the market is declining in order to make sense of it you must also say, "as compared to ______."

I'm not sure I really agree with this. There is a nugget of truth there, but a market can be in decline without comparing it to anything other than prior prices. If this year's price is lower than last year's price then its a decline... I think that most people know what price declines are without specifically comparing them to anything.

Edd Gillespie · by **Edd Gillespie** on Tue May 13, 2008 3:12 pm

Steve Owen wrote:
Edd Gillespie wrote:So when you assert the market is declining in order to make sense of it you must also say, "as compared to ______."

I'm not sure I really agree with this. There is a nugget of truth there, but a market can be in decline without comparing it to anything other than prior prices. If this year's price is lower than last year's price then its a decline... I think that most people know what price declines are without specifically comparing them to anything.

You can't be serious. Can you?

Steve Owen · by **Steve Owen** on Tue May 13, 2008 4:12 pm

Yes. Most definitely. If something is at one level and then at a later time it is at a lower level it can be said to be in decline. It doesn't need to be compared to anything else other than its prior level. I don't believe that anyone would argue that when you at at the top of the chain lift on the Timberwolf Roller Coaster you are getting ready to decline. Of course, compared to the galaxy as a whole you might be found to be going up. You don't have to compare it to that, though... you only have to compare where you are now to some prior, reasonably drawn, time period.

Of course, there are other factors, widely accepted, that can lead to referring to a market as being in decline. For example, in typical analysis, if an active inventory of more than six months of properties on market exists, it is often considered a sign of a declining market. Another example is increasing foreclosures and REO sales competition... I have heard of appraisers determining that their market was in decline from looking at that data alone. And, last but not least, there is the famous "numbers of sales" and average DOM figures. However, if I saw that kind of data, say 8 months worth of inventory combined with a few percent more REO's and short sales than the prior year, and 210 average DOM compared with only 180 the year before, and a few fewer sales than the period before, but still saw prices increasing compared to the most recent quarter, half-year, and year, I would not call that a "declining" market. In my opinion, when considering whether a market is in decline, price is king.

Edd Gillespie · by **Edd Gillespie** on Tue May 13, 2008 5:27 pm

Steve Owen wrote:If something is at one level and then at a later time it is at a lower level it can be said to be in decline. It doesn't need to be compared to anything else other than its prior level.

But, but, but you just compared it to itself at a different time and found the relationship to indicate a declining price ot value. That is relative.

Steve Owen · by **Steve Owen** on Wed May 14, 2008 10:39 am

Yes I did. I said that there is a nugget of truth there. However, I don't believe you must say what you are comparing to in every case. I believe the public understands that when you say a market is declining you are talking about prices.

Chris H · by **Chris H** on Wed May 14, 2008 11:19 am

Steve Owen wrote:Yes I did. I said that there is a nugget of truth there. However, I don't believe you must say what you are comparing to in every case. I believe the public understands that when you say a market is declining you are talking about prices.

Is that an extraordinary or hypothetical assumption and do I have to disclose it? :rof:

Edd Gillespie · by **Edd Gillespie** on Wed May 14, 2008 12:10 pm

Steve Owen wrote:Yes I did. I said that there is a nugget of truth there. However, I don't believe you must say what you are comparing to in every case. I believe the public understands that when you say a market is declining you are talking about prices.

Well there you go. You said it, you believe the public understands it, no support or basis needed, end of story. I'm not buying that one, at least not for the kind of appraising I am advocating for.

Maybe you should be reporting why you think a market is trending one way or another. Then you would have at least some support for your belief that you are understood by the public.

Otis · by **Otis** on Wed May 14, 2008 6:53 pm

Chris H wrote:
Steve Owen wrote:Yes I did. I said that there is a nugget of truth there. However, I don't believe you must say what you are comparing to in every case. I believe the public understands that when you say a market is declining you are talking about prices.

Is that an extraordinary or hypothetical assumption and do I have to disclose it?

Ummmmmmm - I'll get back to you with a non-specific answer. :rof:

It is interesting since I keep getting calls and emails from RE Brokers here asking me about it - it seems that Fannie, according to an unnamed LO, has indicated that the Albuquerque market is now a declining market. Well, I got news for them. There are a few parts that are in a decline (surrounding the big box builders with all their incentives) but the greatest majority are stable and there are some that are in appreciation. We have a rather lengthy email going on here questioning that exact factor from honest appraisers.

Goodpasture · by **Goodpasture** on Wed May 14, 2008 10:06 pm

Otis wrote: There are a few parts that are in a decline ...................

I Meadowlakes recovering yet?

Otis · by **Otis** on Wed May 14, 2008 11:14 pm

Goodpasture wrote:
Otis wrote: There are a few parts that are in a decline ...................

I Meadowlakes recovering yet?

Otis · by **Otis** on Thu May 15, 2008 5:01 pm

This was just sent to me by a real estate broker I've known and respected for many years. It's from BoA.

CRE – Retail Sales

Declining Markets Metropolitan Statistical Areas (MSA) Update

May 13, 2008

Distribution: All Retail Sales Associates

Action: Please Read

A declining market is identified as an area in which home prices are currently depreciating. Any property with an LTV 80.01% or higher that is located in an area classified by Bank of America (Chase Shiller Weiss Home Price Index or as noted on the appraisal by the appraiser) to be a declining MSA is not eligible for maximum financing, and must be reduced by 5%. Declining markets will be reviewed quarterly using the Case Shiller Weiss Home Price Index.

Effective on or after May 17, 2008, any new application or Buyer Ready loan with a property identified will be required to follow the new updated Declining Markets list. Bank of America will be updating the Declining Markets list and a number of new MSA’s will be added.

Total MSA’s in Declining Markets is 115, up from 84 from last quarter.

· 34 new MSA’s enter the list

· 3 MSA’s exit the list: Ann Arbor, MI; Lansing MI; Sherman-Denison, TX

The following new MSA’s will be added to the Declining Market list:

Carolinas

Goldsboro, NC

Central

Flint, MI

Jackson, MI

Greater FL

Ocala, FL

Mid-Atlantic

Baltimore-Towson, MD

Dover, DE

Harrisonburg, VA

New England

Bridgeport-Stamford, Norwalk, CT

Burlington-South Burlington, VT

Hartford-West Hartford-East Hartford, CT

Norwich-New London, CT

Portland-South Portland-Biddeford, ME

Springfield, MA

Northern California

San Jose-Sunnyvale-Santa Clara, CA

Northwest

Bremerton-Silverdale, WA

Eugene-Springfield, OR

Logan, UT-ID

Longview, WA

Mount Vernon-Anacortes, WA

Olympia, WA

Portland-Vancouver-Beaverton, OR-WA

Sales, OR

Seattle-Bellevue-Everett, WA

Yakima, WA

Pacific SW

Flagstaff, AZ

Texas/NM

Albuquerque, NM

Upstate/Metro NY/NJ

Vineland-Millville-Bridgeton, NJ

Non-Footprint

Colorado Springs, CO

Mansfield, OH

Ogden-Clearfield, UT

Salt Lake City, UT

Springfield, OH

IMPACTED LOANS:

Buyer Ready:

Buyer Ready transactions in the pipeline must have a property identified by May 16, 2008 or the new declining markets list will preside and a change of terms will be offered if applicable, upon identification of property.

Edd Gillespie · by **Edd Gillespie** on Sat May 17, 2008 8:45 am

Does anyone understand this indexing by OFHEO and Case-Shiller? I have read cautions about relying on indexes alone for market trend analysis and yet there it is out there purporting to report the very market trend I am trying to analyze. I don't know how to use it correctly in my analysis and reports. Can anybody help? I don't see some of the heavy weights using it at all, but here we have BOA and as I recall some PMI company dictating loan parameters based on the index. What gives?

I have tried to get the underlying data from OFHEO and they won't give it up. Something about privacy and confidentiality. So much for transparency and accountability.

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Labeling ZIPs as 'declining' could slow recovery

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