| HUD Gave a Questionable Gift to the Rich |
| Written by Jonathan Smoke | |
| 03.07.2008 | |
|
Discuss this article on the forums. (0 posts) Before I began reviewing the new conforming loan limits from HUD and FHA, I didn’t expect to find anything interesting. After all, the legislation passed in February clearly stated that the new limits would be based on median home prices in each county. That seemed simple enough. I previously reviewed the likely changes using NAR’s median home prices at the end of 2007. We concluded that only 31 markets would be impacted. Last night I pulled up the recently announced actual new limits. The hidden libertarian in me was, and still is, flabbergasted at what I found. Is this a well-intentioned government action run amuck? Did the Secretary of Housing and Urban Development use darts on home listings to find median home prices? Regardless, I had expected HUD to take a rather liberal interpretation of the directive to extend the loan limit for an entire MSA based on the median home price of its highest county. Indeed they did. In fact, they calculated more than twice as many markets with higher limits than we did. It is yet to be seen if this temporary, complex and heavily bureaucratic approach of changing the conforming loan limits has any material impact on mortgage rates and therefore home sales and home prices on a national scale, but my review did lead me to this conclusion: HUD just gave a gift to the rich who live in or are planning to buy homes in expensive resort areas. And there may be some very significant issues with the data they used. You can review the new limits by searching on counties and MSAs in a tool on HUD’s web site. When you take the undocumented median home prices from the bizarro land and combine them with this “share the wealth” approach, the U.S. ended up with 68 MSAs impacted by these new limits. While this may appear positive, the truth is that several markets benefit in ways that counter the spirit of this legislation. Perhaps no legislation would have been better if it couldn’t be kept simple. This is the map of counties across the continental US that had increases. See that lone, bright red county in Georgia? It is a case in point. Greene County is a relatively sparsely populated county in the central part of the state. But it happens to contain a lot of land that adjoins the popular Lake Oconee. It is also home to Reynolds Plantation, a very high end resort that’s home of the 2008 PGA National Championship. And it’s also home to a one of a kind Ritz-Carlton Lodge, where George W. Bush has vacationed on occasion in recent years. Here’s a view of median home prices, affordability and the distribution of existing values of homes in Greene County. We checked the February 2008 median existing home sales price from NAR, and according to Moody’s Economy.com, that median price was $101,960. That is a FAR CRY from the $530,000 median price reported by HUD. A 420% variance. And guess what? That’s not the biggest variance. We checked all of the counties and discovered 78 counties out of 241 counties with loan limit changes had median prices according to HUD that were more than 100% more than the values reported by NAR. How big a deal is this discrepancy? If the data HUD used are incorrect, and the NAR data are correct, 60 of these changed counties don’t deserve a higher limit. That would include Greene County. If you happen to be a resident of Reynolds Plantation or are considering a home to purchase there, make a move before the end of the year or before congressional hearings begin on how HUD calculates medians, because you can now get a conforming loan up $662,500. I seriously doubt that this is the lone example of an unintended consequence of this legislation. For dozens of reasons, it would have been better if the loan limit were raised to a single well-understood number that applied consistently everywhere. If HUD’s data are correct, it must be influenced by measuring transactions in a short period—like a month—and by areas with rich tastes—very large homes on very large lots in exclusive resorts—to drive up the median value. However, it doesn’t mean that the home owners there deserve cheaper mortgages courtesy of government subsidized insurance. Since HUD used undocumented median home prices, we can’t tell, but I cry foul on at least some shoddy calculations. We cover housing market stats on 939 markets in the country. Our intelligent subscribers wouldn’t be fooled by bad median price data. 
We're always looking for feedback from our readers.
|
))
))
| < Prev | Next > |
|---|
