Summit County affordable housing hit hard by recalculated income index
Know before you buy
The Summit Combined Housing Authority provides free real estate workshops throughout the year, along with services for buyers and sellers. To see a complete listing with dates and locations, visit the website at http://www.summithousing.us.
First-time homebuyer class — A crash course on listings, mortgages and anything else a newcomer might need, all taught by a local real estate broker.
“Lunch and Learn” series — Local experts cover a range of subjects to prepare residents for buying a home, including how to read a credit report and mortgage requirements. Plus, free lunch.
Down payment assistance loans — Buyers can qualify for assistance between $15,000 and $25,000, based on income level, to bridge the gap between mortgage payments and the home amount.
Real estate listings — Sellers can list a deed-restricted home for a 2-percent fee.
The Summit County real estate market is enjoying a sort of a renaissance — unless you own a deed-restricted home.
In early March, the U.S. Department of Housing and Urban Development released a new area median income, or AMI, for Summit County. This AMI benchmark is revised annually to help local property owners and organizations like the Summit Combined Housing Authority determine who qualifies for affordable housing.
Yet when Carina Fisher decided to sell her home in Summit Cove’s Soda Creek neighborhood, one of nearly 20 sought-after deed-restricted properties in the county, she was hit with an unexpected bombshell.
The HUD recently revamped its formula for calculating AMI, and when it did so, the local AMI was slashed by roughly 4.6 percent. It dropped from $90,800 in 2014 to $86,600 in 2015 — the steepest decline since before the Great Recession of 2008.
In general, deed-restricted homes tend to increase in value every year when based on the AMI, and local values were no exception until this year. Income levels don’t wax or wane as wildly as the real estate market, so when homeowners like Fisher and two Soda Creek neighbors approached the housing authority advisory board last week for an explanation, they assumed their homes were earning equity, or at least remaining static.
But because deed-restricted properties are separate from the free market — home prices in Soda Creek are based on a percentage of Summit’s current AMI — they don’t play by the rules of economic recovery. Instead, they play by the rules of a federal HUD algorithm.
“Homeowners and brokers, the people on the street, prefer to have the system work in our neck of the woods here in Summit County,” said Kathy Christina, a local broker and member of the housing authority advisory board. “We’d prefer that the AMI pertain directly to us, but the government isn’t necessarily concerned about that. They’re more concerned about the bigger picture across the U.S.”
And now, seven years after the housing bubble burst, the AMI is finally catching up. If a Summit resident has only owned a deed-restricted property for a year or two, the property didn’t accrue enough equity to overcome the 4.6-percent income decline. The housing authority has rules in place to make sure homeowners will never lose money on a property — deed-restricted homes will always be listed at or above the purchase price — but if an owner expects a return on their real estate investment, much like the Soda Creek residents, it’s not a guarantee.
“Unfortunately, because we don’t have control of the methodology we have to live with this happening,” said Jennifer Kermode, the housing authority executive director. “And it’s likely we’ll see a similar drop in 2016. It might not be as drastic, but I believe it will happen. Our hope is that this is the one year when the Recession really catches up to us.”
FAR FROM SIMPLE
In a small, mountain community like Summit County, calculating AMI is anything but straightforward. HUD actually changed its calculating methods at the end of 2013, but as Kermode explains, two additional indexes are responsible for the long-delayed local impacts.
The first index is an American Community Survey, or ACS, a sort of mini-Census conducted annually in large metro areas. Yet in Summit, the ACS is only compiled once every five years. The 2015 AMI was calculated in part with data from the latest ACS, which covered 2008 to 2012 — a woefully lean span for the local economy.
The second index is equally remote: the Consumer Price Index, or CPI, taken from the closest metro area of Denver, Boulder and Greeley. The HUD took CPI data from the first half of 2012 and paired it with the most recent ACS to “trend forward” the AMI, Kermode says.
“We all know that 2008 to 2012 was a very bad time in Summit County for real estate and just about everything, really,” Kermode said. “They (the HUD) are looking at the worst time for the economy in the past 15 years, and by taking that data and trending it forward with a lousy CPI, you get figures that don’t represent real time or real money for Summit County.”
The new AMI calculation hit Colorado resort towns and hit them hard. Pitkin County and the Aspen area fared the worst with a 5.26-percent drop, followed by Summit County at 4.6 percent and San Miguel County (home to Telluride) with a 3.78-percent decrease.
Oddly enough, the Eagle County AMI only dipped by about 0.81 percent — a larger population with annual ACS data could influence the small drop, Kermode says — while Grand and Routt counties both increased. Clear Creek County’s AMI jumped by 4.17 percent.
And this isn’t the first time a new AMI algorithm has impacted prices. In 2006, shortly before the Recession, HUD again changed its methodology to help more people qualify for national programs. In Summit, home values stayed static after the revision, even though the AMI rose at a steady clip of 5 percent annually before then. The HUD agreed to give current homeowners a value adjustment, but this caveat went largely unnoticed and Summit homeowners were forced to eat their loses, often because there was a disconnect between the federal program and local governments.
HOMEOWNERS, SIT TIGHT
While the AMI drop took Summit residents by surprise, brokers warn prospective homebuyers that deed-restricted houses should always be treated like any other property. Christina says buyers should think of a deed restriction — including rules like residency and income limits — as any other home loan.
“If you want a loan from an entity, they give you the rules and ask you to fulfill the requirements,” Christina said. “That’s what you signed up to do with a deed-restricted property, and for AMI, those metrics aren’t set locally. Those numbers are coming from a federal agency and we have to follow the rules, just like Bank of the West has rules for their mortgages, or First Bank has rules for their mortgages.”
For the moment, Christina and Kermode urge homeowners in deed-restricted neighborhoods to wait until the next AMI is released in 2016. This wasn’t quite an option for Fisher — she’s selling her Soda Creek property to support a move to the Front Range — but again, Kermode says owners should take care of their properties. In terms of renovations and general upkeep, affordable homes are still real estate, and any improvements will bolster values.
Before 2016, Kermode and the housing authority want to prevent future AMI drops. This could mean a major shift for the local deed-restricted market.
“As we were digging around, we got an idea of what to look for with other indexes,” Kermode said. “The affordable housing program needs to be sustainable for the long run. Any index we use needs to be relevant to Summit County and relevant on a real-time basis. There just isn’t a simple answer.”
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