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Feature More Detailed Index L enders have long used various indexes in an attempt to track price movements. But many of those indexes track only the major markets or don't offer the ability to track for statistical "noise," according to Raj Dosaj, VP of behavior model and home price index (HPI) at LPS. "The desire to improve analytics has grown. When things change directions, people rethink what they are doing," he said. The LPS Home Price Index uses a repeat-sale methodology, which means it compares the sale price of a home with its previous sale price and uses this data to increase or decrease the index. Lenders, for example, can use the analytical data offered by the LPS' HPI, which summarizes sales concluded during each month using a repeat sales analysis of home prices as of their transaction dates. The LPS HPI reports five price quintiles along with foreclosure and short sale discount rates for each of the 15,500 ZIP codes it records and is believed to be the most extensive market analysis model of its kind. Additionally, unlike some other home price indexes, the LPS HPI weighs the figures by the number of properties in a given area. So, 50 monthly sales in a statistical area with 200 properties will have a much higher statistical impact than the same number of sales in an area with 500 properties. The index is offered for four property groupings in each quintile: all residential properties, condominiums, single-family housing, and other types of residential properties. Home prices are available with or without seasonal adjustments. The breakouts of foreclosure and short sales prices are important to correct for the impact on estimates of open-market prices that those sale prices have, according to Dosaj. If the ZIP sample size is too small, then the LPS HPI provides users with the ability to include information from neighboring ZIPs in order to get a meaningful 28 | The M Report sample size to determine local trends, Dosaj said. The LPS HPI provides aggregates of all these values for larger geographies than ZIP codes: cities, counties, states, the nation, and MSAs—statistical areas defined by the White House Office of Management and Budget. The LPS HPI covers about 83 percent of single-family residential properties in the U.S. by combining property and loan data in its repeat sales analysis. The LPS HPI is also the most accurately timed home-price information available, detecting market changes sooner than other HPIs, according to Dosaj. LPS' HPI Now, using the HPI data, summarizes real estate from market to market. Crime rate, unemployment, schools, rental rates, vacancies, environmental risks—all of these contribute to make two identical homes worth very different amounts. "They all need to be included in determining the risk of the property itself," said Daren Blomquist, VP of RealyTrac, based in Irvine, California. RealtyTrac looks at property characteristics, tax assessor records, bankruptcy status, and sales history, along with 20 categories of key housingrelated facts provided by the company's wholly owned subsidiary. Through RealtyTrac, subscribers can also obtain property "It's more important to know [the trends] when the market is going down than when it is going up. The markets always move faster on the downside than the upside." —Gary Painter sales concluded during each month using a repeat sales analysis of home prices as of the transaction dates. He cautions, though, that a single month's report can still have statistical anomalies, so users of the data should look at a few months to determine and confirm trends. A single month showing a change, acceleration, or deceleration may not indicate a market's true direction. U.S. Home prices increased 1 percent in February (the latest month LPS had available at deadline) and were up 7.3 percent year-over-year. The price of a representative home in the U.S. rose to $210,000. Going Beyond Real Estate T here are macroeconomic factors that also affect the value of characteristics, including age, square footage, and type (e.g., three bedrooms, five bedrooms, etc.), which can be combined with the sales data to see which kinds of properties are moving in different areas. The company provides some of this data on a market level (not property-specific information) at no charge from its website. But, according to Blomquist, "Trying to do high-level analysis on data that you get for free is very shortsighted. That is the type of mistake that many lenders made 10 years ago. You need to dig below that surface information. That's invaluable from the risk side." By closely analyzing the market, foreclosure, credit risks, etc., a lender or investor may uncover opportunities not reflected by the free data, Blomquist added. For example, lenders with good success working with higher-risk properties may find that their analysis of the raw data shows acceptable risk in a particular market even though the high-level figures and trends would indicate the risk is too high. To help users learn about the foreclosure market and successfully purchase properties, RealtyTrac also provides a number of industry-leading resources including a national network of more than 8,000 real estate professionals to assist users, a national network of mortgage providers, capsule reviews of foreclosure laws in all 50 states, educational materials from leading foreclosure investment authors, and a monthly newsletter with tips on using the site and industry news. To also aid on the risk side, RealtyTrac offers various foreclosure reports to help subscribers determine their strategies with foreclosed properties in different markets, Blomquist added. "Foreclosures are one of the biggest red flags of risk in an area," he said. Knowing the rate of foreclosures is also critical for owners of those properties, Blomquist notes. The owner of properties in an area with numerous foreclosures might choose to auction them to clear them off the books faster or may opt to hold on until prices improve. If there are few foreclosures in the area, the owner might elect to seek higher prices on sales, Blomquist explains. In the future, RealtyTrac expects to expand its services to offer market analysis for lenders in addition to the raw data, according to Blomquist. MBS Analysis Tool M ortgage-backed security (MBS) investors also need market insight to determine their activity in buying and selling. The more demand for the mortgage-backed securities, the better the liquidity in the market. The more data and trans-