Thursday, January 28, 2010

Housing Opportunity Index

Okay, this is what I was looking for yesterday. The National Association of Home Builders and Wells Fargo have been calculating a Housing Opportunity Index (HOI) since 1991. Their findings for the third quarter of 2009 are here.

With a median Tucson family income of $57,500 and a median sale price of $159,000, the median-priced house is affordable to 73.4% of the families in Tucson.

Tucson's HOI hit its low in the third quarter of 2006, when only 30.2% of the families in Tucson could afford the median-priced house.

Obviously, a home purchase is affordable to more Tucsonans now because the home prices are a lot lower than they were three years ago. We also need to consider that the HOI is a function of mortgage interest rates, so the unbelievably low interest rates (below 5%) are a significant contributor to housing affordability.

Tucson's HOI is 129th out of 227 metropolitan areas studied.

Wednesday, January 27, 2010

Tucson Undervalued?

A study by says that the median home price in Tucson is $148,200 (doesn't say how they came up with that) and that Tucson real estate is undervalued by 15%. It was overvalued by 27% in 2006, according to this study.

They arrive at these conclusions by comparing the median home price to population densities and historical premiums or discounts an area has experienced.

I'd like to see a comparision of what percentage of families earning the median income can afford the median-priced house. That seems like a more meaningful evaluation of value.

Sunday, January 24, 2010

Harris Hawks

I have been hearing the piercing cry of hawks at our house near Campbell and Ft Lowell for weeks. One recent morning I was sitting in my home office. I looked out the window, and there was a family of three hawks in the mulberry.

It looked, as Steve would say, like a married couple and a teenager. The red shoulders and white rumps are characteristic of the Harris Hawks.

Uh oh. Busted.
It didn't take long for them to notice me in the window, 15 feet away. After glaring at me for a few more minutes, off they flew.

Sunbeam has added the hawks to the bobcat, javelina and the coyotes as her top four reasons for preferring to observe the world from within our house.

FHA Changes are Coming

FHA will be taking measures to address their risk exposure and strengthen their finances by announcing policy changes that will affect future FHA loans. FHA reserves have fallen below the federally-mandated level, and FHA needs to raise capital quickly so they can continue to insure mortgages.

Effective April 1, the Up Front Mortgage Insurance Premium (MIP) will increase from 1.75% to 2.25% of the loan amount. The Up Front MIP is added to the loan amount, and is being restored to its previous level.

In early summer, all FHA borrowers must have a minimum credit score of 580 in order to qualify for minimum down payment of 3.5%. Borrowers with scores less than 580 will be required to make at least a 10% down payment. Can you believe that people with under 580 credit scores are currently buying houses? Some lenders have already established their own credit standards. For example, Fairway Mortgage will not lend money to people with credit scores under 620. Even that seems too risky to me. A score over 720 is considered excellent, and 800 is the maximum possible credit score.

Also in early summer, allowable sellers concessions will be reduced from the current 6% of sale price to 3%. Seller concessions are seller contributions to the buyer's closing costs and amounts pre-paid into escrow accounts.

You may think this doesn't pertain to you because you don't plan to get an FHA loan, but as credit tightens up, we will see fewer borrowers qualifying for loans. This could result in a reduction in demand for houses. What happens when we have high supply and low demand?

The last of the most recent changes affects investors who buy a house to fix and flip. Currently, the investor can't sell a house to an FHA buyer until 90 days after the investor purchased it. This is supposed to prevent buyers from paying too much for a house, but I think if the house has been fixed up, it is worth more, and the investor deserves to be rewarded for providing livable housing to the market.

Anyway, the 90 day rule will be waived by FHA effective February 1. Again, lenders can make up their own rules. I recently sold a house that an investor had fixed up, and the lender required three appraisals because less than six months had passed between the investor's purchase of the house and the buyer's offer. This wasted time and money for both the buyer and seller, but lenders are very afraid of making a bad loan, so they want everything squeaky clean.