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Appraiser News – Concerns Over Real Estate Market Piling Up

March 1st, 2010 by Bill Collins Leave a reply »

Concerns Over Residential Market

The New York Times on February 24th and February 28th reviewed some of the recent market data from Case-Shiller, First American CoreLogic, the Mortgage Banker’s Association and other sources.  The Times reported that sales of both new and previously occupied homes fell in January and that the Mortgage Bankers Association’s index of loan applications was at its lowest level since the middle of 1997.  Bad weather is blamed for part of this but the Times also reported that concerns about unemployment played an important part along with the fact that many current homeowners owed more than their homes were worth and could not sell and buy another one.  The homebuyers tax credit apparently has not yet provided the stimulus that was anticipated and the Times quoted Roberton Williams, a senior fellow at the Tax Policy Center in Washington, as stating that: “You’ve got a really big problem that requires big guns, and the tax credit is just not big enough”.

The Times cited a report by First American CoreLogic which indicated that 600,000 more households fell “underwater” in the 4th Quarter of 2009, reaching a total of 11.3 million or 24% of all residential properties with mortgages.  On February 28th, the Baltimore Sun expanded on this research by First American CoreLogic, noting that the study suggests that “…homeowners whose homes are worth less than 75% of the mortgage amount are most apt to simply walk away and let the home fall into foreclosure, even if they have the means to pay”.  A spokeswoman for First American is quoted in the Baltimore Sun article as stating that once a house is worth less than 75% of the mortgage, the emotional attachment that the homeowner has for the property disappears.

Here are links to the articles in the New York Times:

Despite a Price Gain in December, Signs of Worry on Housing

Not Much Impact From Repeat Buyer Credit

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Building Bust: Large Drop in Construction of Single Family Homes

On February 16th, the New York Times also reported that 60% fewer homes were constructed in the U.S. in 2009 than in 2006.  The article stated that:
“In the last 18 months, we have experienced a building bust that is the natural consequence of the building boom that preceded it.
From 2002 to 2006, Americans built 9.1 million units.   Over approximately the same five-year period (from March 2002 to March 2007), the number of American households grew by only 6.7 million.   Perhaps a million of those units replaced older homes that were destroyed or abandoned, but that means that we entered this recession with an excess of about 1.4 million housing units.”

A link to this article is found here: Children Moving Back Home and the Construction Industry

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Fed Ending Purchases of Mortgage Backed Securities: What Will Be The Impact?

On February 17th, the New York Times reported the concerns of some economists regarding the likely rise in interest rates in coming months and a link to that article is found here: The Housing Market’s Crystal Ball

While many economists project increases of from ½% to 1% on mortgage rates, there are some who think that this will not occur or has already been factored in by the marketplace, as you will see in this CNBC video from February 23rd which can be viewed by clicking on the following link: Fed to Stop Purchasing Mortgage-Backed Securities

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Rates & Dates

The Mortgage Bankers Association (MBA), in its most recent Weekly Mortgage Applications Survey for the week ending February 19th, reported that the average rate for 30-year fixed-rate mortgages was at 5.03%, up from 4.94% for the week ending February 12th.  Freddie Mac reported also reported an increase in their most recent survey with rates for 30-year fixed-rate mortgages increasing to 5.05% in the week ending February 25th, up from the previous week’s rate of 4.93%.

Additional information from the Mortgage Bankers Association can be found by going to their site: Mortgage Bankers Association

Additional information from Freddie Mac can be found by going to: Freddie Mac: Primary Mortgage Market Survey PMMS

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Freddie Mac Reports Losses

On February 24th, the New York Times reported that Freddie Mac lost almost $26 billion last year and has lost almost $80 billion since the housing crisis began in 2007.  Freddie Mac reported that a record 4% of its borrowers are at least three months behind on their payments and facing foreclosure.

Freddie Mac’s chief executive, Charles Haldeman, is quoted in the article as stating that a ”potential large wave of foreclosures” is expected in the future.

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Fannie Mae Also Reports Losses

The New York Times reported on February 26th that Fannie Mae reported losses of $16.3 billion in the last quarter of 2009 and had requested $15.3 billion from the Treasury to maintain a positive net worth.  Fannie Mae also said that the losses were likely to continue and that additional taxpayer funds would be needed in the future to continue operations.  Fannie Mae indicated that serious mortgage delinquencies on single family homes rose to 5.38% in the fourth quarter from 4.72% in the third quarter and 2.42% at the end of 2008.

The article quoted Jim Vogel, head of fixed-income research at FTN Financial Capital Markets in Memphis, as saying that:

“Fannie Mae’s financial performance indicates that as much as we would like the excesses of the last decade to be behind us, the clean-up period is going to extend for at least the next several years,” he said.

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FHA Updates reported on February 19th that seriously delinquent FHA loans increased by 62.1% in the past year to 9.4% of loans as per FHA statistics released that day as of the end of January.  FHA Commissioner David Stevens defended the agency and insisted that the FHA’s finances were sound.  He is quoted as saying that:  “The FHA default rates are increasing at a slower rate than even prime mortgages” and the article cites Jay Brinkmann, chief economist for the Mortgage Bankers Association as suggesting that the numbers were something of a statistical glitch.  A link to the report is here:

Late FHA Loands Spike 62% – But It’s Not As Bad As It Sounds

On February 11th, FHA Commissioner David Stevens spoke to the Standard and Poor’s Housing Conference in Orlando, Florida regarding the FHA’s role in the housing market and its current condition.  A link to Commissioner Steven’s prepared remarks for that day is found here: U.S. Department of Housing and Urban Development

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Commercial Real Estate Mortgage Defaults Dramatically Increase

On February 24th, Business Week reported research by Real Capital Analytics Inc. which indicated a doubling in the default rate for commercial property mortgages held by U.S. banks in the last quarter of 2009.  The article quoted Sam Chandan, Real Capital’s global chief economist as saying: “The level of distress continues to rise irrespective of improving economic trends.” The research stated the following year over prior year default rates:

Loans on office, retail, hotel and industrial properties: defaults increased from 1.6% to 3.8%

Loans on apartment buildings: defaults increased from 1.8% to 4.4%.

Mr. Chandran was also quoted in the article as stating that: “With the concentration of commercial mortgages in small and community banks, there is a potential spillover that will impinge on their ability to make loans to small businesses and families”.

Here is a link to the entire article:

Commercial Mortgage Default Rate in U.S. More Than Doubles

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FDIC Preparing For More Bank Failures

On February 23rd, the New York Times reported that the F.D.I.C. announced that it had placed 702 lenders on the “problem banks” list.  This was reported to be the highest number in seventeen years.   F.D.I.C. chairwoman Sheila Bair reported that she expected bank failures for the current year to be greater than the 140 failures that occurred during 2009.

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Angie’s Question of the Day

First, we want to congratulate the winners of the last contest:  Barry Brown of Brown Appraisal Associates, Greenwood, South Carolina and Kathy Christianson, Five Star Appraisals, Oakley, California (west coast winner) who knew that the correct answers to last week’s questions were Mark Twain and Demosthenes.

Today’s two part question: Who said:

“Failure is the foundation of success…

Success the lurking place of failure.”

The choices are:

1. Mark Twain

2. Donald Trump

3. Bernard Shaw

4. Lao-Tzu

5. George Steinbrenner

And: “Man needs difficulties;

They are necessary for health.”

The choices are:

1. Lao-Tzu

2. Sigmund Freud

3. Carl Jung

4. Mark Twain

5. Andrew Cuomo

The winner of this week’s contest receives a free copy of the Directory of Appraisal Management Companies for FHA Appraisers.

Angie’s Hall of Fame: Those who have been crowned winners more than once and who have been retired from competition for the rest of 2010:

Suzanne Fahien

Pat Reass

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Tell us what you think!

We invite your responses to any of the issues raised in this newsletter. Please e-mail us at: with your thoughts!

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Bill Collins, Appraiser Help Inc.

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