Declining market for FHA

[William Rightsell]

I have a client telling me that FHA automatically considers a market to be in decline if there is an over supply of listings and the marketing times are over 6 months. Is this correct? I have never heard of such a thing, and she is claiming it is an FHA rule.

We turned in an appraisal with the boxes on page 1 checked reflecting a stable market, oversupply of listings, and over 6 mos marketing time, which is backed up by the 1004MC data. She claims FHA considers that to be a declining market and is requiring two sales w/in 90 days and 2 additional listings.

While I admit that this could very well lead to a declining market, the data on the 1004MC totally contradicts this, as does observation in the field. Median sales prices and list prices are actually rising while the actual number of listings rise and marketing times lengthen. It is what it is, and we called it stable. She is not concerned that we checked stable, but is telling us that FHA considers tis to be declining.

Anybody know where this may be written - if at all? I have never seen a reference to it. I asked her to forward a copy of it to me, but no response as of yet.

Opinions?

Thanks...

todd

 

[timd354]

I have a client telling me that FHA automatically considers a market to be in decline if there is an over supply of listings and the marketing times are over 6 months. Is this correct? I have never heard of such a thing, and she is claiming it is an FHA rule.

We turned in an appraisal with the boxes on page 1 checked reflecting a stable market, oversupply of listings, and over 6 mos marketing time, which is backed up by the 1004MC data. She claims FHA considers that to be a declining market and is requiring two sales w/in 90 days and 2 additional listings.

While I admit that this could very well lead to a declining market, the data on the 1004MC totally contradicts this, as does observation in the field. Median sales prices and list prices are actually rising while the actual number of listings rise and marketing times lengthen. It is what it is, and we called it stable. She is not concerned that we checked stable, but is telling us that FHA considers tis to be declining.

Anybody know where this may be written - if at all? I have never seen a reference to it. I asked her to forward a copy of it to me, but no response as of yet.

Opinions?

Thanks...

todd

I would consider a market that has an oversupply of inventory and a marketing time that is substantially longer than what is normal in a stable market for that area to be a declining market whether or not the closed sales data is reflecting that reality yet.....remember the closed sales data reflects buying decisions that were made in the past (typically 30-60 days ago in my area) and do not neccesarily reflect what is happening the market right now. On the other hand, if there is an oversupply of inventory right now, I know that the inventory is generally priced too high for the current demand and that price reductions are likely occuring right now in order to sell that inventory.

I will say that I would not rely on some hard and fast rule regarding marketing time, as there are certainly some markets and some sub-markets where a marketing time over six months or even over a year may be quite normal and may not be indicative of a declining market.

 

[RSW]

I would consider a market that has an oversupply of inventory and a marketing time that is substantially longer than what is normal in a stable market for that area to be a declining market whether or not the closed sales data is reflecting that reality yet.....remember the closed sales data reflects buying decisions that were made in the past (typically 30-60 days ago in my area) and do not neccesarily reflect what is happening the market right now. On the other hand, if there is an oversupply of inventory right now, I know that the inventory is generally priced too high for the current demand and that price reductions are likely occuring right now in order to sell that inventory.

I will say that I would not rely on some hard and fast rule regarding marketing time, as there are certainly some markets and some sub-markets where a marketing time over six months or even over a year may be quite normal and may not be indicative of a declining market.

Good post, Tim! I would go on to say that you should use a spread sheet and some graphs in your report to help support your decision as to if the market is declining or stable. Nothing works better than showing how you arrived at your conclusion. The 1004mc is not always a good indicator and may provide misleading results.

 

[Proactive]

Anybody know where this may be written - if at all? I have never seen a reference to it. I asked her to forward a copy of it to me, but no response as of yet.

I do not know where that is written however the five comp appraisal (three sales/two listings) has become the standard in our market.

Call it a pre-emptive strike...

 

[Don Clark]

I have a client telling me that FHA automatically considers a market to be in decline if there is an over supply of listings and the marketing times are over 6 months. Is this correct? I have never heard of such a thing, and she is claiming it is an FHA rule.

We turned in an appraisal with the boxes on page 1 checked reflecting a stable market, oversupply of listings, and over 6 mos marketing time, which is backed up by the 1004MC data. She claims FHA considers that to be a declining market and is requiring two sales w/in 90 days and 2 additional listings.

While I admit that this could very well lead to a declining market, the data on the 1004MC totally contradicts this, as does observation in the field. Median sales prices and list prices are actually rising while the actual number of listings rise and marketing times lengthen. It is what it is, and we called it stable. She is not concerned that we checked stable, but is telling us that FHA considers tis to be declining.

Anybody know where this may be written - if at all? I have never seen a reference to it. I asked her to forward a copy of it to me, but no response as of yet.

Opinions?

Thanks...

todd

Bill,

Better print this and read it. FHA has several situations where a trend in the 1004MC indicates a declining market.

http://www.HUD.gov/offices/adm/hudclips/letters/mortgagee/files/09-09ml.doc

Mortgagee Letter 2009-09

 

[William Rightsell]

Thanks to all who responded.

I have learned something new. I can see where they are coming from and the logic behind it, but I just wanted to see the actual guidelines from FHA.

Thanks for the link to the mortgagee letter Don.....I had read it before but missed that little nugget!

todd

 

[timd354]

Bill,

Better print this and read it. FHA has several situations where a trend in the 1004MC indicates a declining market.

http://www.HUD.gov/offices/adm/hudclips/letters/mortgagee/files/09-09ml.doc

Mortgagee Letter 2009-09

People need to be sure that they realize that the FHA mortgagee letter referenced does not mandate that an appraiser check any particular box on the 1004 regarding about whether or not the market is declining. It only mandates what the FHA considers to be a declining market, which then causes other appraisal requirements. This is a very fine point, but it is nevertheless one that is important to understand since it is ultimately the appraiser's judgment that should be used when determining whether or not to call any particular market decling, stable or increasing.

 

[Cob]

The HUGE problem I and many appraiser friends I have with the 1004MC, is that it can give you very misleading data (USPAP violation). Say you do an appraisal with an effective date of March 1st, when you fill out the inventory and current listings and sales current to 3 months, you are looking at comps from Feb, Jan and Dec, these are the SLOWEST months of the year for real estate activity almost every year, the comps and listings are going to be minimal and the prices more than likely lower.

Then when you go back 4-6 months there will be more of everything, sales listings and slightly higher list and sales prices as you are looking at data from Nov, Oct and Sept.

When you go back 7-12 months there is TONS of activity as the data you are looking at is from Aug, July, June, May, April and March, there are tons of sales, listings and all the prices seem higher.

This is why the 1004MC is misleading in my opinion, we should be comparing data from one year to the next, not breaking down one year into three times of the year. It makes NO sense to do it that way, the best time for anyone to refi or buy a home will be in August 1st and September 1st as all the data from the previous 3 months (July, June and May) or (Aug, July, June) will make any market seem like it is increasing. But hey, what do we know we are just appraisers!

 

[Mike Boyd]

I do not know where that is written however the five comp appraisal (three sales/two listings) has become the standard in our market.

Call it a pre-emptive strike...

I agree although it is 3 sales, 2 of which must be within 90 days and two current listings or pending sales

 

[bb0bbby]

Bill,

Better print this and read it. FHA has several situations where a trend in the 1004MC indicates a declining market.

http://www.HUD.gov/offices/adm/hudclips/letters/mortgagee/files/09-09ml.doc

Mortgagee Letter 2009-09

Thanks DC...i too forgot about this one.