Why Housing Won’t Crash Again

Healthy Arizona Housing Market

Healthy Arizona Housing Market

While we can “never say never” today’s Arizona housing market is NOT the same market as that of the early 2000’s.  With Phoenix area housing prices rising and buyer’s feeling the competitive pressure each time they ink a new purchase offer, many are pondering the thought “gee, this feels a lot like something we have been through before.”   If that were true and we were in a market bubble destined to burst then we should all RUN from this housing market like we would run if someone had a just lit a fuse that led directly into the full gas tank of our car.  The bottom line is that emotion is deceiving and while today’s market feels like that one we all want to forget, logic tells us it simply is NOT.

Housing Changes We Don’t Like That Protect Us

To an outsider, it’s easy to criticize the Arizona housing market and pinpoint with precise accuracy (note sarcasm) what all went wrong.  It’s called Monday morning quarterbacking. What’s more astonishing is that those SAME people gripe and groan when they buy a house today and they are inconvenienced by today’s tougher rules/regs.  Here are a few examples of new rules/regs that help us but aren’t the easiest for everyone to accept:

Appraisal Regulations:

A few years ago the Federal government completely overhauled the mortgage/appraisal process.  Why?  They felt (and in many cases they were justified) that mortgage lenders were in cahoots with Real Estate appraisers.  In the past, whatever value the lender needed was often given by the appraiser – justified or not.

Now, in an effort to make sure the housing market stays healthy lenders across the country are required to have an appraiser randomly selected.  The loan officer is also absolutely forbidden from discussing the appraisal and value with the appraiser.  What has happened is that appraisers (who now know they are under INTENSE Federal scrutiny) have made it a regular practice to conservatively appraise Arizona homes.  No more stretched aggressive valuations.

This leads to more appraisals coming in lower than what sellers like.  I have heard more people curse our current appraisal process than I can count.  Now I am not a big “curser” but I am not innocent.  I too have “critiqued” today’s appraisal process.   There are absolutely unintended consequences that come along with this process that I would love to do without.  At the end of the day however, this new system has curbed hyperinflation of our Arizona Real Estate prices.  Arizona home values are not as high as they would be today without it.

Increased Borrower Documentation Requirements:

Do you know anyone that has gone through the mortgage process in the past 12 months?  Ask them what they thought of their experience.  I’ll bet my bottom dollar everyone but Mr. Rodgers and those that are an absolute “slam dunk”/easy loan say something regarding the level and type of documents their mortgage lender required.   Clients will often jokingly say “I hear you may need a blood sample” on the first call with me.  I kid back with “blood samples are no longer good enough, we now need DNA and bone marrow.”

In reality what is needed today is not that unreasonable – it’s just more.  Many of today’s mortgage guidelines do make sense.   If loan officers would just take the time to explain them and walk clients through the “why” home-buyers would not be nearly as frustrated. Here is a great example:

Requirement: Borrower must document large deposits showing on their bank statements (if they are not identified as payroll/tax refund etc…)

The Why Behind Requirement: There are extensive studies that show that a borrower that cannot demonstrate an ability to save has a high propensity to miss mortgage payments and/or foreclose.   Now, borrowers are allowed to get a gift from a family member.   How is that different?  If they get a gift, they have not saved.  True – however getting a gift from a family member also shows that they have a support network that is close enough to them (family) that they may be able to rely on if they get in trouble financially.

It’s one thing to disagree.  It’s quite another to still disagree but at least know why you are being asked for more documentation.

No Perfect System to “Fix” the Housing

To date, no one has revealed the perfect fix to protect against what happened before.   What we do have are mortgage guidelines created by folks trying to buffer against it happening again.  Making sure borrowers have the true ability to repay their home loan and trying to keep Arizona home values growing at reasonable rates is the focus of many of today’s more frustrating mortgage guidelines.  They are not perfect by a LONG shot but they are far better than “if you have a pulse you qualify” and “sure that sounds like a good value.”

By Jeremy House

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