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@ lyoungblood
"However, your tool is a good way to check and see if prices are generally in line with the median incomes in an area, which is always a good check to see if you’re overpaying for the neighborhood or house you’re purchasing."
You've got it! The MSV is not the market value. It's a 'check' on the market value.
One of the assumptions is that most of the properties in the area will be similar (in square footage etc). If that's not the case, then you have to break down the data further - that's what the income distribution and property type tables are for - and run a Custom MSV.
Hopefully, this can explain of this a little more clearly ... Evaluating MSV Accuracy
That is a pretty cool site. I like the explation of income leveraging by lenders. I've never seen it broken down like that before.
Once I got my head around the value tool, I liked that too. I think getting people to understand it will be your biggest problem though.
@ will
Thanks.
As far as getting people to understand it, I agree with you. I don't think the concept is difficult to understand, I just think it's not what people expect. People assume that it's telling them the market value is $x, when it's just telling them a value more than $x can't be sustained given the income for the area.
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Last week I posted (New Home Value Tool Based on Area Incomes) about a new site I've been working on - ValuSage.com. I have had some visits to the site and views on the post, but not much feedback. In looking at the post, I see it looks a little spammy and I didn't do a very good job of explaining what it is all about. So...
I tried to create an easy to use tool (a la Zillow) that the average person can use to calculate the "Maximum Stable Value" or MSV for a neighborhood. It's based on the median income of a neighborhood. It's essentially a souped-up mortgage payment calculation run in reverse. Interestingly, I noticed last night that the results correspond closely with the rule of thumb "don't pay more than 3 times your annual income for a house" that I've seen referred to on Patrick.net.
Aside from helping people make smarter real estate decisions, I am hoping that it can be an effective new weapon for the defenders of commonsense (that's you and me). NAR, big banks etc. have inertia, popular misconceptions, infrastructure, and all the tools to support business-as-usual on their side. We have thoughtfulness, logic, and prudence on ours. While in a perfect world that would be enough, in this one we end up too often as voices in the wilderness, preaching to the choir.
But if all someone has to do is type in an address and get back a big, red, official looking number and a message that says "Don't pay more than this for this house" or "Don't refinance for more than this or you will end up upside-down on your mortgage" people will pay more attention. We end up with more people making rational decisions without having to understand the evils of securitization or price vs. income ratios. In other words, we make it easy for people to do the right thing.
So, since the central ideas of the two sites are identical - prices are too high in relation to incomes - I thought that Patrick.net would be the place to come to:
So, what do you think? Any thoughts, suggestions, opinions?
#housing