I have now come across several articles and blog posts on the idea of declining markets and their impact on a buyer’s ability to follow through on a contract they have signed for purchasing a home or their simple ability to even shop for a home.
The same lenders that were willing to write loans at 125% to value are now deciding that certain areas are over-valued and will be losing money in the next time period. Therefore, to make sure they get their money and do not submit any more risk into the lending equation, they have labeled certain areas across the country as “declining markets”.
This is a map that shows the declining market areas.
Jim Duncan wrote an article about the declining markets and received this map from Countrywide as their list of counties indicated as declining markets. Jim goes into further detail then I will here about how this whole process borders on “red-lining”. It is worth reading.
What is most important to buyers to know is that this is a dynamic map and Countrywide (and other lenders) will be using it to ask you the buyer for more money down, or charge you a higher interest in order to mitigate the lender’s risk in these “declining markets”. I have already become acutely aware how days before close of escrow, the underwriter comes back and changes the loan requirements on the buyer. I have seen examples where lenders have asked for 5% more down before underwriting the loan because the property is located in a “declining market”.
If you are in the middle of the obtaining a loan or pre-approval, ask your lender about declining markets and find out if your potential purchase has been identified as an address within declining lines. It will help to save headaches and heartaches further down the road.