Everything’s Local



Everything’s local when it comes to home values

CNBC reported in April that home prices will be under pressure in regions of the country that are heavily dependent on the leisure and hospitality industries. UBS in their most recent report mentions Las Vegas, Miami Florida- both suffered a crash in values during the subprime crisis in 2008. However, the headwinds of the housing market are not limited to ‘convention cities’. Landlords in high-rent cities such as…

 

1 comment

James E. Veale, CPA, MBT June 5, 2020 at 1:12 am

Many argue that we can see national housing trends in local markets which is somewhat true. It is not true that the same markets reflect national housing trends each time there is a sales price change in residential homes. Keeping up on the trends in the markets we serve is not only useful for us in helping to manage the appraisal expectations of applicants but by being current with price trends in those markets we become knowledge experts.

So in Los Angeles (LA) County, CA, the trends in Santa Monica, Malibu, Beverly Hills, Encino, and Pacific Palisades, will normally experience a different trend in sales prices than homes in Van Nuys, North Hills, Lynwood, Whittier, Lakewood, Pomona, and Rosemead. In LA County, CA, the stratification may need subcategories in some cities and communities simply because of their size such as Long Beach and Pasadena where there are not only first time buyer type homes but also executive homes.

Being on top of local trends in sales prices will not only help you care for your customers but can mean more closings because your knowledge brings intangible value into the reverse mortgage decision making process. Areas that once were closely tied together before COVID-19 could have different sales price trends due to the impact of COVID-19 in those communities (such as unemployment and potential foreclosures). Sometimes the difference in sales price trends have little foundation in logic or reason but they are still very real.

In places like Long Beach and Pasadena, subcategories of types of housing may be needed such as first time buyer homes, family oriented housing, senior communities, condo living, and executive style housing.

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Is it true that all HECMs use LIBOR to determine both the expected interest rate and the note interest rate? Actually that is not the case. Mortgagee Letter 2007-13 states that lenders could for the first time begin using LIBOR starting on 10/12/2007 forward. Neither that Mortgagee Letter nor any other HUD issued regulatory document eliminated the use of CMT (the only permitted index before 10/12/2007) as a HECM index. Every fiscal year there are a small percentage of newly endorsed HECMs that use the CMT even though the vast majority use LIBOR. Also in the G&SRI Fund there are a substantial number of HECMs using the CMT.

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