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NAMB supports bi-partisan effort to establish national uniform lending standards

National Mortgage Professional
May 18, 2005

Home values sizzle and freeze, depending on the regionCharlie Elliott Jr., MAI, SRA2004 home values, home appreciation, regional factors We hear a lot about home values increasing and how the home is the best investment that most of us will ever have. It is true that 2004 was one of the best years on record for home price increases, at least in parts of the country. This is evidenced by the March report of the Office of Federal Housing Enterprise Oversight (OFHEO). This organization is a division of the U.S. Department of Housing and Urban Development and is the watchdog for the government overseeing the government-sponsored enterprises (GSEs), which include Fannie Mae and Freddie Mac. Given their position, they have access to all of the nationwide housing statistics in each market, and they regularly produce the Housing Price Index (HPI). During 2004, home values increased more nationally than they have in 25 years to an average annual rate of 11.2 percent, reports OFHEO. Another report coming from the National Association of Realtors (NAR) reflected an increase of 9.26 percent in the median sales price of existing homes, rising from an average of $169,500 from the end of 2003 to $185,200 at the end of 2004. In spite of the skyrocketing prices in many areas of the country, not all homeowners have been pleased with the rate of increase in the value of their homes. In some areas of the country, home value appreciation barely existed; in others, homes increased in value at a blistering rate, some in excess of 30 percent, according to OFHEO. Listed below is a more local metropolitan area breakdown of some of the changes in home values around the country that fall outside the mainstream or average values as reported by OFHEO: Red hot areas: •Las Vegas 36 percent •Bakersfield, Calif. 30 percent •Reno, Nev. 30 percent •Riverside, Calif. 30 percent •Visalia, Calif. 27 percent Ice cold areas: •Anderson, S.C. one percent •Sioux City, Iowa one percent •Columbus, Ind. two percent •Mansfield, Ohio two percent •Austin, Texas two percent You may be asking yourself what the people in Anderson, S.C., did to deserve the lowest rating of any metropolitan area in the country. Furthermore, and perhaps more intriguing, what did the Las Vegas people have going for them that we did not in our area? There is probably no one answer since many factors go into determining home value appreciation. If I had to settle on one, I would "place my bets" on the local economy. You probably could not help but notice the reference to gambling in the phrase addressing why Las Vegas is at the top of the heap. That was no accident. Gambling and the related economic effects that accommodate it were the engine that boosted the fortunes of those owning a home near the strip. Notice that Reno was not far behind its larger sister in our "Red hot areas." As for Anderson, S.C., an overall sluggish economy in both Carolinas has contributed to the lackluster home appreciation. The area has been plagued with many factory closings in recent months. This can generally be attributed to competition from overseas in textiles and related industries. Perhaps more analysis is in order to get a handle on the complete spectrum of housing value changes. It would be inaccurate to portray a small area in Nevada and California as the only area of the country where substantial home value increases occurred during 2004. There were many areas that experienced value increases in excess of 20 percent within the past year. Nor would it be proper to imply that the Carolinas are the only places experiencing a near-stagnant housing market. Listed below are a few additional geographic areas displaying both favorable and unfavorable housing appreciation statistics as reported by OFHEO: Hot areas: •Palm Bay, Fla. 26 percent •Los Angeles 25 percent •San Diego 24 percent •West Palm Beach, Fla. 23 percent •Port St. Lucie, Fla. 23 percent Cool areas: •Youngstown, Pa. three percent •Saginaw, Mich. three percent •Indianapolis three percent •Toledo, Ohio three percent •Boulder, Colo. three percent While much could be said for the reasons why this sampling of geographic areas has displayed hot or cool housing markets, a couple of key issues come to mind, which should be addressed. There is a common thread in the hot areas, not all of which is shown on the sampling above. It seems that our entire country is obsessed by water properties, both waterfront and near water. It is no accident that all five of the hot areas listed above are areas that benefit from their location on or very near the ocean, and that's not all. Many other areas demonstrating rapid appreciation are water areas, including Virginia Beach, Va.; Honolulu; Hagerstown, Md.; and Medford, Ore., all of which had appreciation rates at or above 20 percent last year. Homes located in rich playgrounds, resort areas and areas of sunshine are also among the high appreciation areas. While much of the time these areas are also near water, they are also basking in appreciation and usually frequented by those owing two or more homes. Cool areas are somewhat harder to classify into one group, but it is fair to say that most are in areas where the economy is sluggish due to plant closings, layoffs and a general lackluster economy. Some cities experiencing appreciation rates at or below five percent in 2004 include Nashville, Tenn.; Detroit; Fort Worth, Texas; Pittsburgh; Tulsa, Okla.; and Rochester, N.Y. For those of us wanting to get into the act of making money on our homes, a few points should be considered. Shy away from buying homes in areas of high unemployment, lower socioeconomic parts of town and areas experiencing slowdowns in economic growth. Areas demonstrating aggressive technology expansion should be favored over those relying heavily on factory jobs, as many of these jobs are going overseas. Homes located in or near vacation areas, beaches, lakes, heavy growth, second homes, etc., are to be given prime consideration. Having said all of this, it should be noted that some years are better than others, and, as with the stock market, a rising tide is an advantage to all boats. Having just come off a year with very high tide, caution is advised. It should be further noted that OFHEO also reported that the last quarter of 2004 demonstrated the weakest quarter of the year, representing a slowdown from the other quarters. With interest rates rising, finding the appreciation niche in housing may be more difficult in 2005. Charlie W. Elliott Jr., MAI, SRA is president of Elliott & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889, [email protected] or through the company's Web site at www.appraisalsanywhere.com.
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