St. Louis Real Estate - Mortgage News - Declining Market 2

Declining Markets Part 2 by Chris Scheer, Branch Manager, Cornerstone Mortgage, O’Fallon, MO

So what defines a “Declining Market?” Some investors have taken their large paintbrush out and if an area; county, city or zip code has seen their average sales price drop in the last quarter; they are calling it a “Declining Market.” Others have chosen a smaller brush and have stretched the time out by reviewing the last six months. Then the rest of the investors have left the defining to the appraisers, which is whose shoulders it should fall on. They are the ones whose job is to provide support that the investor is making the right decision to purchase a loan on a certain piece of property.

So when I checked with a few appraisers to learn their definition of “Declining Market” I was not surprised to find that each appraiser had their own Declining2 definition of “Declining Market.” The thing to remember about appraisers is that what they do is not a science; it is more of an art. So again we use the paintbrush analogy and there are some appraisers that are running scared and using their large paintbrush and putting the term “Declining Market” in all of their appraisals. Others are taking the time to do a statistical review of the cost of the homes in the various areas and are applying the term when there is a continued decrease of value that exceeds 5% over three six month periods and then there are others who are only applying the term if the valuations have changed by greater than 10%.

In addition, most investors are only concerned with reducing the loan to value on Conventional loans. On FHA and VA loans, the appraiser has factored the market into the value and it does not have an impact on the amount the borrower can borrow.

For questions or comments on this, please contact Chris Scheer at chrisscheer@stlouisrealestatevoice.com

Tags: St.+Louis+Real+Estate, Mortgage+News, Appraisal, Home+Buyers, Declining+Market

This entry was posted on Tuesday, May 13th, 2008 at 6:08 pm and is filed under Appraisal News, For Buyers, Mortgage News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Comments

Comment from Bryan
Time May 15, 2008 at 4:16 pm

St. Louis is becoming a declining market. A marketing tactic first pioneered in California has come home to St. Louis.

http://www.stltoday.com/stltoday/business/stories.nsf/0/79003846EB12B2A08625744A0008856C?OpenDocument

This is worrisome because not everyone has been willing to admit yet that we’re in a downturn. Granted, California started its downturn in 2006, and statistics show that we peaked in August of 2007, the reality still remains. It’s going to get worse before it gets better. Median price has to come in line with median income before we can recover, and it hasn’t yet gotten to that point. At median income of 37K (estimated based on 2000 census and reported pay increases since), St. Louis median prices should be around 90-100K, not 150K. That number is the greater metro area, not just the county.

We’re close, but not there yet. You really need to get down to the micro-level to find pockets at correct price levels, but the majority of the area needs a downturn to return to fundamentals, which merits the “broad brush” approach more than other methods.

Comment from Keahi Pelayo
Time May 15, 2008 at 11:11 pm

Thanks for the straight talk on appraisers.
Aloha,
Keahi

Comment from doug
Time May 18, 2008 at 8:05 pm

Read this article from the Wall Street Journal from today: http://online.wsj.com/article/SB121089649942297163.html

Of course if Fannie and Freddie relax their policy it doesn’t mean that the MI companies will insure the properties.

Bob Rutledge

Author: “Wally’s Way” An Action Plan for Real Estate Success

Coach: Success Coaching for the Budget Conscious Real Estate Agent

Professional Mortgage Consultant

Midwest Mortgage Capital

314-787-5637 Office

314-913-9678 Cell

http://www.bobrutledge.com

bob@bobrutledge.com

Comment from doug
Time May 18, 2008 at 8:07 pm

Bob:

Thank you for your input on this volatile issue. I always appreciate the valuable resources within our industry. You are a true professional. Please continue to give me feedback and information when you see that there is opportunity.

On this topic, as the article you mentioned points out, there is still a lot of gray as to what is declining and not. At this point we have too many people who are too afraid to underwrite and are relying on knee jerk reactions to steer their policy decisions. As the dust settles from this current mortgage crisis, we should see desire of investors to start extending credit overcome issues like this. But for now, the game changes each and every day!

Thanks,

Chris