Is the ‘Declining zip code’ designation a self-fulfilling prophecy?
May 1, 2008
If you have tried to purchase a home lately, you may have heard your lender tell you that the real estate purchase is in a “declining zip code“.
What does declining ‘zip code‘ term mean?
Simply put, banks and lenders charge either higher rates, fees, reduce loan amounts and/or require larger down payments for qualified buyers who wish to purchase in these zip codes.
In fact, declining market lending policies are common-place these days. According to the Realty Times, somewhere between 8,000 and 10,000 zip codes are affected nationally.
We are suffering the declining ‘zip code‘ designation in almost every city in Arizona , including Mesa, Chandler, Phoenix, Glendale, Peoria, Tempe, Mesa; Almost every city except for Paradise Valley and Scottsdale.
The question that is being raised by industry groups and many minority groups is whether this designation is a self-fulfilling prophecy?
Here’s a common story:
A buyer finds a home they love, makes and offer and gets the contract accepted. They buyer then goes to a lender who tells them that the bank will require more down payment then previously accepted because , “the home this buyer wants to purchase is located in a “declining zip code“.
Mr. Buyer’s American dream is crushed. They question the home purchase and decided to cancel the offer (citing financing contingency) and wait to purchase until the market drops further. Thus no purchase, no sale, no market.
Ask yourself what you would do if a lender told you the home you love is in a declining market. In a sense, (bank opinion) is that it is worth lessor will be worth less than you are paying.
I understand banks want and need to lend money prudently.
However, are lenders telling us the market is worth less than buyers actually believe?
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Copyright © 2008 By James Wexler, All Rights Reserved. *Is the ‘Declining zip code’ designation a self-fulfilling prophecy*
Contact James Wexler (480) 221-8080 for all your Phoenix Scottsdale area Real Estate needs.
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[…] Brother must be listening or at least reading Wexzilla. (please see May 1st Blog -Is the declining zip code a self-fulfilling prophecy? […]
Yes, it’s a self-fulfilling prophecy, but the question is more complex than that.
Here’s another story.
A buyer finds a home they love, makes and offer and gets the contract accepted. They buyer then goes to a lender who tells them that the bank will offer them the mortgage they want. The bank, however, knows that the property is in an area that’s going down in value, but doesn’t tell the buyer this.
Mr. Buyer’s American dream is fulfilled. He and his new wife get the house they fell in love with.
Two years later, however, Mrs. Buyer gets a better job offer out of State. They talk about it, and decide that they will move (she earns more than he does, and he is hopeful about finding a new job close to hers). They try to sell. Crikey - they are in negative equity. They end up being stuck in a declining neighbourhood for the next 10 years, unable to make the move that would allow (in the long term) Mrs. Buyer to become a VP.
Neither story has a happy ending - the question is, which ending is sadder. The buyer who gets stuck, or the vendor who has trouble selling?
Good point Mark. Never took a second to think about the “grey area” of putting someone in their dream home compared to leaving someone in a dream home that has no value down the line. Excellent point / counter point here. Thanks.