Friday, January 7, 2011

A Hint for the Mortgage Bankers Association: 95230 is Farmington, the name is a clue to your puzzling data on city neighborhoods

The Mortgage Bankers Association just released a report getting lots of press called "A Study of Real Estate Markets in Declining Cities."  Because Stockton is a featured case study in the report, I just wasted much of morning reviewing this junk.  It has many obvious problems on my initial pass through the report, but I will just point out this one that tickled my funny bone.

One point that the MBA report overly emphasizes is the disparity in the rates of depreciation within declining metro areas.  It makes this point by pulling out a few select zipcodes in the Stockton metro area (San Joaquin County) to show the disparities in values.  He only identifies the zipcodes by numbers, not names of the areas, but those of us who live and work here recognize the zipcodes include Tracy, northwest Stockton, and 95230.  I have to admit, I had to look up 95230 because I don't see that one too often.

The author is amazed at the difference between 95230, "where the value of the stock has increased by over 115 percent since 2000 and has only given back 10 percent since its peak in 2005" and uses this as evidence of widely varying outcomes within neighborhoods in the Stockton MSA.  In fact, I have noticed just the opposite, there is remarkably little variation in the percent depreciation by zipcode, and the variation that does exist is generally driven by the amount of new (built 2002-2007) construction in the zipcode sold at initially inflated prices.

In an ideal world, the author (Dr. Follian) would have taken a field trip to the area and visited a few of these zipcodes before selecting a small sample for analysis.  He would have learned that his featured zipcode does not include a single stoplight, although there is one 4-way stop pictured below. (Visiting bankers should be sure to click on the image and view the whole downtown Farmington panorama)

{Image deleted because it was messing up the loading of the blog. Go to Google Maps, type in Farmington, CA to see an image of downtown.]

The zipcode basically straddles Highway 4 from this stop sign in Farmington into the foothills before Copperopolis, beautiful country and one of my favorite drives in the area.  Dr. Follian would enjoy the drive, and would also learn that he should probably discard this zipcode from a study of real estate markets in "cities" for the MBA.  The zipcode covers a vast area and has a population below 1,000.

Despite the snarky comments, I don't really fault him for not coming here.  As an economic researcher I spend a lot of time analyzing data in areas I infrequently or never visit (particularly Los Angeles).  However, when one notices a large anomaly in the local data, there is usually a simple explanation to be found on Google Maps or in the old days just by picking up the phone.

If mortgage bankers want better analysis of the San Joaquin County real estate market, I recommend the Regional Analysts we published on the subject in May 2010 or December 2008.  Please don't stop lending here because of the flawed analysis in your Association's report.  Mortgage bankers have done enough damage to this area, and it seems to me that they don't understand the local housing market any better today than in 2003 to 2006 when their risky loans fueled the Stockton bubble.

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