Appraisal Blog

Much of the the local and national buzz in the appraisal industry is about the declining residential housing markets.  So, how about Pueblo Colorado and other Southern Colorado housing markets?

Why all the fuss?  The huge mortgage lenders (not your local mortgage broker/lender or bank) created loan programs for lending money to home buyers and those refinancing with little or no credit or equity.  They misjudged their risk, while telling their investors everything was fine, now their stock is plummeting.  This is the single most important factor, by far, why there is a growing number of foreclosures and REO resales happening in the Pueblo and national residential housing market today.  It is not directly related to any local unemployment rate, the price of gas, the price of tea in China, or the value of the dollar on the world market.

The market expanded to account for all of these junk loans, designer loans, sub-prime loans,  and adjustable rate loans.  They became a significant part of the market.  Now they are gone...  We now have too much housing inventory for very few qualified home buyers in the market place.   

The mortgage lenders now need to compensate for these junk loans and they have tightened up their requirements for obtaining a loan.  Not only will you once again need good a credit history, but if your home is identified as being in a "Declining Market", you will typically need an 5% additional collateral in the hunt.  This means where once you only needed to have 5% (or less) as down payment, you will now need 10% maybe more depending on your credit.      

This new policy considerably dries up the pool of qualified borrowers out there, both for purchases and refinances.  It also kills any chance for someone who got in over their head on a loan and is headed for foreclosure to refinance.  So with no financial asset to protect in a home, many homeowners are simply walking away from their loan obligations and loosing the home to the lender through the foreclosure process.     

Now back to determining what a declining market is. We first need to define what a declining market means.  Fannie Mae nor Freddie Mac have came up with a solid definition.  Does decline pertain to value or sales volume, or both? What period of time do we measure it by, year to year, year to date, quarter by quarter?  I believe every reader of this blog will have a different definition, but I thinks it's safe to say the market has slowed down recently or it has cooled off some, but how much that depends on how you define the market.

Remember too, the golden rule of real estate, "Location, Location, Location". What happens in Pueblo will be totally different that the market in Florida or California or Denver of just across town.   Now of course what we all really want to know is, "what will the market be tomorrow"?  Is measuring the past the best way to predict the future?

Maybe we should just use a crystal ball?  As appraisers we often joke that clients really just want us to have a crystal ball, so we can tell them what will happen. They can then make a lending decision. 

Here is my prediction. Pueblo never saw the run away appreciation that other markets have had in recent years. We have not grossly overbuilt our new construction inventory. Unemployment is relatively low and not changing. People here and everywhere across the county will keep living, loving, having kids and changing their family structure. This creates genuine demand for housing.  The lenders have pretty much stopped giving away money to borrowers that have marginal credit and little no collateral. So, I believe in the long run we are in pretty good shape here in Pueblo.