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Market Depression? Appraisal Industry Tops in 2011?

January 18th, 2011 by Bill Collins Leave a reply »

The Dreaded "D" Word

On January 11th, CNBC.com staff writer Cindy Perman, upon reviewing the mountain of negative data stated that:
“In the past few years, we’ve all been careful to choose our words carefully, not calling it a recession until it fit the technical definition and avoiding any inappropriate use of the “D” word — Depression. Things were bad but the broader economy never reached Depression territory. The housing market, on the other hand, just crossed that threshold."

She noted a Zillow report that the 26% decline since June 2006 was worse than the 25.9% decline estimated during the Depression years between 1928 and 1933 with home values expected to continue their decline.

Ms. Perman also noted Zillow’s estimate that the value of the White House, 1600 Pennsylvania Avenue, Washington D.C. had dropped to $251.6 million from a peak of $331.5 million in June of 2006. 

Considering its importance to our country, as a public service, AppraiserNews.com & AppraiserHelp.com would like to engage a qualified real estate appraiser to estimate the true value of the White House, rather than rely on Zillow. Please forward all appraisal fee quotes (along with turn time and appraiser qualifications) to Bill@AppraiserHelp.com.

By the way, let us know whether you will be providing a Cost Approach in your proposal for the White House appraisal. 

Bloomberg.com reported on the pessimistic outlook of homebuilders on January 16th in the article Home Building, Sales Probably Languished as Market Lagged Behind Recovery

While construction of “McMansions” and “White Houses” may be slow, an interesting January 14th report in the Huffington Post included one dozen photos of “small eco houses” from the book (naturally called Small Eco Houses: Living Green in Style by Francesc Zamora Mola, Cristina Paredes Benitez and Alex Sanchez Vidiella) and a link to this interesting photo display is found here: 11 Small Eco Homes That Live Large

Reminiscent of the Great Depression, the New York Times reported on January 13th that an audit of the United States Department of Agriculture (USDA) found that many rural home loans were poorly underwritten and warned that a wave of defaults might be forthcoming.  In response to Congressional mandates to increase lending to small-town home buyers, the Times reported that the value of federally backed home loans increased to $16.2 billion in 2009, up from just $3.7 billion two years earlier, and reached almost $16.8 billion last year.  While acknowledging problems, a USDA official stated that “We’re very confident that the overall objective of the recovery act was met” and officials pointed out that the while the overall foreclosure rate had risen, it was still significantly lower rate than for loans insured by the FHA. A link to the New York Times article is found here:
Auditors See Rising Defaults in Rural Loans

In a January 14th interview with Bloomberg’s Betty Liu, Mortimer Zuckerman, (CEO of Boston Properties, chairman and editor in chief of U.S. News & World Reports and publisher of the New York Daily News) discussed his bearish sentiment on housing which included an additional 10% to 20% decline in residential housing values and the lack of apparent solutions.  When questioned about possible improvements in the commercial sector, he noted signs of improvement in places like New York City which are not yet occurring in secondary markets.  This sentiment was echoed by Sam Chandan of Real Capital Analytics in the New York Times on the same day in an article in which he discussed the biggest transaction of 2010: Google’s $1.6 billion acquisition last month of 111 Eighth Avenue in Manhattan, a price that he indicated worked out to $621 per square foot.  Links to the Zuckerman video and Chandan article are found below:
Mort Zuckerman Interview on Economy
Sam Chandan 30 Minute Interview

CNBC real estate reporter Diane Olick commented on January 13th about the possible huge “foreclosure dump” that many foresee in the coming year and another CNBC reporter, Colleen Kane, posted an article about what to look for (“red flags”) in inspecting foreclosed homes.  Links to both of these articles are found here:
Whitney Defends Muni Call, Sees "Indiscriminate Selling"
Real Estate Red Flags

Also on the foreclosure front, on January 13th MSN.com released a report by RealtyTrac which included a slideshow depicting the ten states with the highest foreclosure rates. A link to this slideshow is found here:
States With the Highest Foreclosure Rates

While a flood of year-end statistics were being released and prepared for release, deriving meaningful future projections from this data was complicated by the uncertainties regarding the processing of foreclosures due to court decisions such as the Massachusetts Supreme Judicial Court ruling against the handling of home loans by Wells Fargo and U.S. Bancorp (the fourth and fifth largest U.S. banks).  Susan Wachter, a real estate finance professor at the University of Pennsylvania, was quoted in the Wall Street Journal on January 9th as stating that this was a “landmark decision” with national implications due to the fact that Massachusetts loans were found in many securities.

David Streitfeld writing in The New York Times on January 8th reported that the federal and state investigations into bank’s foreclosure practices were slowing the foreclosure pace, especially in some of the most affected areas in the nation.  He stated that:
“If the slowdown continued through this month and into the spring, it could be a boost for the economy. Reducing foreclosures in a meaningful way would act to stabilize the housing market, real estate experts say, letting the administration patch up one of the economy’s most persistently troubled sectors. Fewer foreclosures means that buyers pay more for the ones that do come to market, which strengthens overall home prices and builds consumer confidence in housing."

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Better Days Ahead for Appraisers? Inc. Magazine Projects Real Estate Appraisal as One of the "6 Top Performing Industries for 2011"

If you don’t believe us, here is a link to the Inc. report which projects revenue growth of 8.8% for real estate appraisers in 2011 and includes the industry (along with environmental consulting and e-commerce) as one of the top six industries for the New Year. 6 Top Performing Industries for 2011

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Forecasting the Future: "Flip That House" as a Leading Indicator

An interesting report by the Huffington Post’s Ryan Grim on January 14th discussed a December 13, 2005 meeting of the Federal Reserve Open Market Committee in which the housing market was a major concern.  While much data suggesting a cloudy future was presented, Roger Ferguson, a Fed governor, is quoted in the article as saying that: "It is hard to say that the housing market is anything but robust". 

Economist David Stockton, at this same meeting, noted that a variety of negative housing indicators suggested that “…we are at the front edge of some cooling…” in this market.  In order to further illustrate his point, Mr. Stockton said (to a laughing room):

"I offer one more piece of evidence that I think almost surely suggests that the end is near in this sector. While channel-surfing the other night…I came across a new television series on the Discovery Channel entitled ‘Flip That House.’  As far as I could tell, the gist of the show was that with some spackling, a few strategically placed azaleas and access to a bank, you too could tap into the great real-estate wealth machine. It was enough to put even the most ardent believer in market efficiency into existential crisis."

Mr. Grim notes that the Federal Reserve Board “…home of many of the most ardent believers in market efficiency, did not go through an existential crisis, however, and did little to slow down surging prices or warn consumers that ‘the end is near.’ Instead, many consumers continued to purchase homes under the mistaken impression that housing prices would continue to rise."

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Rates & Dates

Freddie Mac reported that rates for 30-year fixed-rate mortgages declined slightly to 4.71% for the week ending January 13th from the 4.77% rate reported on January 6th.

The Mortgage Bankers Association (MBA) in its most recent Weekly Mortgage Applications Survey for the week ending January 7th reported an average rate of 4.78% (no survey was made by the MBA for the prior week as their offices were closed). 

In a press release dated January 12th, the MBA reported that mortgage applications were up slightly (2.2%) on a seasonally adjusted basis for the week ending January 7th but the four week moving average seasonally adjusted Market Index was still down by 5.3%.  Refinance applications rose to 72.1% of mortgage activity in this most recent weekly report.

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

Additional information from the Mortgage Bankers Association can be found by going to their site at: Research and Forecasts – Mortgage Bankers Association

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Appraiser News is always a FREE publication. Please support our sponsors by clicking here.

Limited Time Only: Pay Last Year’s Price for This Year’s AMC Directory! Over 150 AMCs listed with fully updated contact information for only $39.99

Ask Angie

First, we want to congratulate our most recent winner, Larry Kelly, a Certified Residential Appraiser with Larry Kelly Appraisal Service, LLC in Fairfield, Connecticut. Larry knew that Mark Twain was the author of the quote “Now is the accepted time to make your regular annual good resolutions. Next week you can begin paving hell with them as usual,” that Henry Moore was the author of the quote “I think in terms of the day’s resolutions, not the years” and that Jay Leno had said that “Now there are more overweight people in America than average-weight people. So overweight people are now average…which means, you have met your New Year’s resolution.”

Today’s questions:

1) Who said, "The only function of economic forecasting is to make astrology look respectable."

a) Ezra Solomon, as quoted in Psychology Today (March 1984); also attributed to John Kenneth Galbraith in U.S. News & World Report in March of 1988
b) Sarah Palin, in an interview with Katie Couric on the CBS Evening News, August 2008
c) Uri Geller and Alfred Einstein in a joint statement at Princeton University, January 1953
d) None of the above

2. Who said: "The conventional view serves to protect us from the painful job of thinking."

a) David Stockton
b) Sarah Palin
c) Albert Einstein
d) John Kenneth Galbraith
e) None of the above

The first person to respond with the correct answers wins a choice of either:

One Free Regular Listing on AppraiserHelp.com

A Free Copy of the UPDATED Directory of Appraisal Management Companies (Available Now to Members of AppraiserHelp.com and FHAAppraisers.com FREE!)

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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: bill@appraiserhelp.com with your thoughts!

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We really hope you find our newsletter to be informative!  If you have any input on future topics for discussion, please email me your questions and I will do my best to address them in the next issue.  If you want to look back at past issues you can see our archive at www.appraisernews.com

Regards,

Bill Collins, Appraiser Help Inc.

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