Mortgage Lending Expert: Home Price Trends
- Author Joffrey Long
- Published February 4, 2010
- Word count 932
Where are home values going? Do real estate pros and economists have the inside scoop – and they just aren’t sharing? ………not quite.
A number of organizations compile and analyze data about housing values - often including projections about where prices are headed. To get the best possible information for use in real estate lending and investing, we’ve reviewed many of these reports. They generally belong to one of two major categories, each containing a critical flaw:
- Realtors, Homebuilders, Mortgage Bankers and other "special interest" groups have their own full time economists. They produce data compilations and projections about home values and market activity.
Major flaw: It’s biased information. Those whose livelihood is directly
linked to the number of homes that sell have a vested interest in always predict-
ing a positive outlook for home values. During the most inflated home market
in our lifetimes, the 2006-2007 housing boom, the real estate brokerage industry’s
key economist indicated that the market was stable and that no downturn in prices
was likely. Advice doesn’t get any worse than that!
- Legitimate research from economists, data providers, and governmental
bodies: This research tends to be from a wider range of sources. These providers are simply selling their research, (rather than influencing homebuyers) so they tend to give non-biased conclusions about the data.
Major flaw: The bulk of the data and analysis available from these providers consists of statistics for an entire county, city, or zip code, and not a specialized market area. Imagine your own zip code – if a number of lower priced homes happened to sell in a given period, the "average sales price" for your area would
be artificially low, failing to include more expensive homes that didn’t happen to sell.
For real estate lenders and investors, this doesn’t work. Given the importance of knowing where a market is going, we need accurate, unbiased information about what’s going in the specific neighborhoods in which we invest.
Finding a better way…
First, we went looking for reliable sources of information. We spoke to various
research providers in the real estate industry, executives at real estate and
mortgage companies, and to several appraisal firms. We were unable to find a
reliable source of research and analysis that addressed our concerns.
Then, working with our own staff, we defined what information we needed and
what the problems with available data were.
As a result of our research, we realized that we needed specific information
about homes in different markets, with the ability to spot trends in smaller
"sub-markets." There was only one choice. We had to develop our own
system. We did. - a proprietary system for data gathering, data analysis, and
The system consists of six key components;
- First, we identified seventeen California homes and townhomes that
represented a cross section of the types of properties we make loans on -
homes ranging in size from 750 to 3,600 square feet, with market values
from $75,000 to $900,000, and in areas ranging from inner city to suburban to outlying areas.
We documented all of the key information such as square footage, lot size, age, amenities, and similarity to other homes in the area. We always make the assumption that the property is in average condition, comparable to the other homes selling in the same market area.
We carefully re-appraise that same home every six months, (and sometimes more often, as necessary) completely starting from scratch, researching homes that have recently sold in the market, as well as similar homes listed for sale.
We then analyze the data, noting specific changes in the value of the home.
After determining if the home’s value has increased, declined, or remained stable, we start to research other data available on the neighborhood, the immediate market area, the zip code, the city and the county. Often, the specifics of a $500,000 home in a neighborhood may indicate no change in value, while the statistics relating to $900,000 homes in that same market tell a very different story. We often find large differences between our findings and the general statistics available about the same zip code or city.
We then research the surrounding local economy and changes occurring in the local city of county, etc. We study the reasons for any decline or increase in value that may be different from the available data about trends in the larger market area. This part of the process is critical. Understanding the "pocket areas" and smaller sub-markets that completely escape most commonly available research can help avoid making a "bad" loan or bad investment decision.
When we receive a loan request or evaluate an investment opportunity, we’re often provided with a property appraisal. We almost always re-appraise the property ourselves, or order an appraisal from an appraiser that we trust. As part of our review of appraisals, we use our value research. It’s unsettling to realize that most appraisers are generally unaware of this type of research and analysis in evaluating property.
This represents a lot of additional work – but does a tremendous amount for the lending and investing process. Many smaller areas, within larger cities or zip codes are increasing or decreasing in value, but not in the same direction as the zip code or city statistics show - all information unavailable from the special interest groups.
The risk imposed by property value fluctuation requires close attention,
careful research, and study. While we don’t have all the answers, this
approach to valuation improves the quality of investment and lending
decisions while reducing risk in the process.
Joffrey Long provides mortgage lending and real estate advice and insight for homebuyers, real estate investors and investors in mortgage loans. He’s a mortgage lender and real estate investor himself, and has been in the industry for 34 years. He’s also called upon to testify as an expert witness in mortgage related litigation matters.Article source: http://articlebiz.com
There are no posted comments.
- How To Pay Off Your Mortgage in 5-7 Years
- How To Remove a Bankruptcy From Your Credit History
- What Credit Score Will Get You A Mortgage?
- What are CAP rates (and why should I care)?
- Exactly how to Select the most effective and also Right Billing Factoring Company?
- How to remove your name from debt review
- How to Choose the Right Mortgage
- How To Find The Right Texas Mortgage Lender
- How a Mortgage Lender Can Help You
- 5 Things To Expect When Meeting with An Investor
- Remortgaging- is it the best option?
- 4 Mistakes You Should Avoid When Listing With An Agent In San Jose
- How to Create Marketable Commercial Mortgage Notes
- Here’s How Debt Consolidation Can Help You
- Home Loan Programs: How Recent Medical School Graduates Can Qualify
- VA Home Loan Programs: How Veterans in Need Can Benefit
- The 30-Second Trick for Australia Mortgages
- Reap Huge Benefits from USDA Home Loans
- Many Benefits of Veteran Loans
- All You Need To Know About HUD 184
- Are House Prices Canada's New Successful Birth Control?
- FHA Lowers the Monthly Mortgage Premiums - Should You Refinance Your FHA Loan?
- Credit Card Basics: How and When to Use Them
- Who Can Benefit from an Offset Mortgage?
- Top 7 Tips for Buy to Let Mortgages
- Over One-Third of Income Spent on Mortgages or Rent in Many Households
- Tips for Mortgages
- Basics of How to Compare Loans: Understanding Index and Margin in Adjustable-Rate Mortgage Loans
- Analyzing the Terms and Conditions for a Mortgages Comparison
- How to Maximize the Way You Use Your Visa Credit Card