| More on HUD’s Questionable Median Home Price Data |
| Written by Jonathan Smoke | |
| 03.10.2008 | |
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Discuss this article on the forums. (0 posts) On Friday I reported that we found troubling data that served as the basis for the new conforming loan limits set by HUD for FHA and Fannie Mae and Freddie Mac loans. A few of our readers have commented to me that they don’t quite understand what this means and why it is of concern, so I thought it would be worthwhile to walk through another example. According to the FHA’s web site, “…the change in loan limits will help provide economic stability to America’s communities and give nearly 240,000 additional homeowners and homebuyers a safer, more affordable mortgage alternative.”
Even more homeowners are expected to be helped by the GSEs (Fannie Mae and Freddie Mac) utilizing the same set of new limits for loans they underwrite.  Congress clearly included this in the Economic Stimulus legislation in order to provide stability in the mortgage market AND to address affordability. If they weren’t interested in targeting affordability with these new loan limits, they would not have complicated it by requiring HUD to set the new limits based on an area’s median house price.The benefit to existing home owners in these higher cost areas would be that they should be able to refinance at a lower rate if their existing mortgage amount is beneath the new limits and their current mortgage is above the previous limit of $417,000 that still applies to most of the markets in the U.S. Likewise, new home buyers could benefit by being able to get a cheaper, conforming mortgage for more than $417,000 in areas where the median home price is higher. The problem we’ve discovered is that some very questionable data have been used as the median home prices for many counties in the country. The most extreme variation is in Elizabeth City, North Carolina, a micropolitan statistical area composed of three counties: Camden, Pasquotank and Perquimans. As of February 2008, the median existing home price in Elizabeth City was $128,352. The highest median price according to NAR was in Camden County at $136,350. Yet somehow HUD calculated that the median home price for Elizabeth City was $828,000. According to our latest data, the vast majority of homes in Elizabeth City are worth less than $150,000. Here’s a link to see the Property Overview and the full suite of economic, demographic and property charts in our current Market Dashboard report for Elizabeth City. )) Click on image for larger view Based on the $828,000 value, Elizabeth City and its three counties now have the maximum conforming loan limit in the continental United States of $729,750. Assuming a 20% down payment, that means home owners in Elizabeth City can get a government backed mortgage on houses as expensive as $912,000.
This cannot make homes in Elizabeth City more affordable as they already are very affordable in the market compared to other markets in the country. At a median income of less than $38,000, I venture to say that only the market’s elite could buy a $912,000 home there. Out of 900 homes currently listed in Elizabeth City, only two are priced above $900,000. Check them out. I wouldn’t call these homes as being aimed at the affordable buyer. So, why should the well off in Elizabeth City benefit while others cannot? Was this simply a result of rushed analysis on a poor data set? It would help if we could trace the source of data, but here’s all that HUD has stated so far: "The FHA used a combination of existing government data sets and available commercial information to determine the median sales price for each area."
Am I the only one concerned about this? I guess we can write off these places like Greene County, GA and Elizabeth City, NC as getting a free gift. I’d think the folks in places like Blaine County, ID, Santa Rosa-Petaluma, CA, and Naples-Marco Island, FL may be concerned because they and other counties got lower limits than what the NAR median existing home prices indicated they were due. 
We're always looking for feedback from our readers.
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