We've fallen and that's good...

PMI Releases fall risk Index - We’ve fallen out of the top 20! The PMI Mortgage Insurance Company recently released it’s Fall 2008 Risk Assessment for major metropolitan areas I the US and Detroit fell out of the top 20 for the first time in a long while. That’s a good thing! This report shows PMI’s assessment, based upon local market factors, of the likelihood that property values will decline further in the metro areas that are reported. In Detorit’s case they lump Detroit, Livonia and Dearborn together and call that the Detroit market. About six notches below that market they also rank the Warren-Troy-Farmington Hills market. Detroit ranked number 21 on the report and the Warren-Troy-Farmington Hills market came in at #27. To read the entire report click here.

While this isn’t exactly earth-shattering news, any good news is welcomed in our current market. This also serves to reinforce what we are seeing in local statistics, which would seem to indicate that we have already bottomed out locally. We have seen local home values falling about 1% per month for the last 18 months; and, that was on top of declines that had already occurred. Values overall are down anywhere from 25-40% from the peak, which most agree occurred in the 2004-2005 time frame. As bad as it is for long-time owners to deal with, the loss in values is even worse for those who bought at the peak. That was also a time of very easy money and loose lending practices; so many of those buyers ended up financing 100% of the purchase, usually with two mortgages. Now those home owners are discovering that they owe far more than the property is worth, so they can’t even refinance. That is critical because a lot of those easy-money second mortgages were ARMs (Adjustable Rate Mortgages) that are now resetting to much higher rates and forcing some into foreclosure.

The other shoe that is dropping on many regular sales (not foreclosures) is the “doesn’t appraise” shoe. Just in my business, 3 out of 5 of the last few sales that I’ve made have had that problem. It doesn’t matter if the buyer and home seller have reached agreement on a price for the property, if the appraiser doesn’t reach the same price or more the sale likely isn’t going to take place (at least not at the contract price). Appraisers have been told by the banks to view Michigan as a “declining market” and to take about 5% off of their appraisals to compensation for the bank’s increased risk. Fannie Mae and Freddie Mac stopped that practice a few months back, but other mortgage lenders have carried it on. What usually happens when that occurs is a re-negotiation of the sale price, sometimes with both sdies kicking in, but most often with the seller having to eat the loss.

So, maybe this good news that we’re no longer in the top 20 value-losing markets will help get things stabilized in our market and give regular sellers more of an opportunity to sell. We still have to work off the excess foreclosure inventory, but that’s happening at a fairly fast pace, so maybe by next spring we’ll be back to “normal”; whatever that means any more.