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No Housing Recovery Until 2014?

May 24th, 2011 by Bill Collins Leave a reply »

The Reports are Unanimous, The Real Estate Market Continues to Worsen

Where do we begin? AppraiserNews.com has been warning about the storm clouds on the horizon for a prolonged period and has called for measures to deal with this crisis before it deepens.

While recent reports highlight the severity of the situation, those in a position to take actions to support the residential and commercial real estate markets are doing nothing positive to address the many problems.  In no particular order, here are some of the recent studies and reports that we have viewed.

On May 18th, Prashant Gopal writing for Bloomberg cited a Trulia/RealtyTrac study which showed that more than ½ of their survey respondents (homeowners and renters) now felt that they did not expect a recovery in the housing market for at least three years.  The article quotes Pete Flint, Trulia’s CEO, as saying that “We have another 18 months until we start to see signs of price stability in the housing market”.  The negative impact of the “shadow inventory” is prominently cited in the report by Mr. Gopal who refers to both CoreLogic and RealtyTrac findings.  Forecasts by Moody’s Analytics and S&P/Case-Shiller findings are also discussed in this report, a link to which is found here: US Housing Market May Not Recover Until 2014: Survey

In a report by CNBC’s Diana Olick on May 16th, the lack of confidence of homebuilders as reflected in the National Association of Home Builder’s monthly report was discussed.  Writing for Bloomberg the following day, Bob Willis discussed the unexpected decline in housing starts in the new Commerce Department report.  Two days later, Mr. Willis along with Shobhana Chandra discussed the unexpected decline in existing home sales reported by the National Association of Realtors (NAR) that day along with the report that the Bloomberg Consumer Comfort Index also declined. Links to these three reports are found here:

Home Builder Sentiment Stagnates in May: NAHB

Housing Starts in U.S. Unexpectedly Fall to 523,000 Pace; Permits Decline

U.S. Economy: Previously Owned Home Sales Unexpectedly Fall

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The NAR Press Release from May 19th: Mr. Yun Dances and Weaves

Lots of data discussed by Lawrence Yun, the chief economist for the NAR, in the press release and video.  Please click on this link to view, it is always fun to listen to Mr. Yun, especially his comments about “this appraisal issue”: April Existing-Home Sales Ease

On Friday May 20th, Diana Olick summarized some of these reports and discussed Fannie Mae’s disappointing monthly economic forecast in a short video which can be viewed by clicking here: Realty Check: Low Interest, Bad Attitudes

On May 19th, CNBC/Zillow released a slideshow of “America’s Biggest Double Dip Real Estate Markets” (Number 1: Gainesville, Georgia) and a link to this is found here: America’s Biggest Double-Dip Real Estate Markets

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Is Commercial Real Estate “Poisoning Small Banks?”

Writing for CNN Money on May 13th, Ken Sweet discussed the problems that small and medium sized banks were having due to the troubled commercial real estate market.  He cited the fact that 13 banks failed in April and quoted David Barr, a spokesperson for the FDIC, as saying that:  “Commercial real estate is a common thread among the more recent bank failures. When the [financial] crisis started in 2008, most banks got into trouble because of residential mortgages, but in 2009 we started to see that slowly transition over to commercial real estate.”

Mr. Sweet noted that the Independent Community Bankers of America reports that small to regional sized banks have $784 billion in commercial real estate loans on their books, a figure that is approximately 71% of the total market.  He quotes Mr. Barr as saying that the reason for this is that the majority of commercial lending is a “local business”.  Mr. Sweet stated that at the market peak, small to mid-sized banks underwrote more than $200 billion in land and construction loans that carried a significant amount of risk with much of the loan collateral consisting of vacant land and incomplete construction sites.  Of the 13 banks closed in April, Mr. Sweet reported that commercial real estate loans made up 79% of their non-performing loans while non-performing residential loans accounted for just 15%.  Mr. Sweet concluded that “pockets of improvement” in the commercial real estate market were limited to larger, “higher quality properties” in cities such as Chicago and New York.  A link to the entire article is found here: Commercial Real Estate Poisoning Small Banks

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Blast From the Past: New Book Released Today About NovaStar Financial, Greed and Corruption

On Sunday, the New York Times published an excerpt from the new book by Gretchen Morgenson and Joshua Rosner titled “Reckless Endangerment (How Outsized Ambition, Greed and Corruption Led to Economic Armageddon)”.  The book describes the meteoric growth of the subprime lender NovaStar, a company that was run like a “frat house” and which managed to avoid SEC action for many years despite setting off many “red flags”.  While the book chronicles events previously described by other authors writing about this period of unprecedented mortgage fraud (all too familiar to many appraisers), the authors appear to have done their research and the book looks like an interesting read.  A link to the Times excerpt is found here: It Teetered, It Tottered, It Was Bound to Fall Down

On May 19th, Matt Taibbi writing in RollingStone discussed the new probe of the three major banks by New York Attorney General Eric Schneiderman along with the new book “Reckless Endangerment”. This article, along with a CNN video featuring Mr. Taibbi and Mr. Rosner discussing these matters, can be viewed by clicking on the following link:

Hammer Coming Down on Wall Street?

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TAVMA Strikes Back in Letter to Federal Reserve Regarding Customary & Reasonable Fees

Edward J. Krug, President of TAVMA (the leading trade association for AMCs) wrote to the Board of Governors of the Federal Reserve System in order to counter what he describes as “…misinformation being disseminated by appraisal organizations and publications…” regarding C & R Fees and a link to this “interesting” letter is found here: TAVMA C and R Letter 4-25-11 to FRB

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Reader Comments Regarding “Customary & Reasonable Fees”

“One of AMC’s that I work for has recently added a new sentence to their order which states…”By accepting this assignment you are acknowledging that the indicated appraiser fee is a customary and reasonable fee in the market area of the subject property.
I wrote back and indicated it was not reasonable and customary, but the sentence is somewhat hidden in their order form and was never there before”.
Janet M. Heller,
Heller Appraisals, Reading, PA

“Always good to read your comments.  Wish I had faith the R/C is going to impact AMC’s.  Guess there is always hope…  Regarding the requests for additional (unnecessary) comparable and market data: “My simplistic answer is look at everything and make an analysis JUDGEMENT.  I should not have to write a book to explain.

I can go with a regression analysis excepting who picks the neighborhood and how many sales need to be factored in.   Market boom brought us sales and listings in almost every neighborhood within blocks.  Today some neighborhoods have not had a sale in 18 months. Comps keep getting harder to find and further and further away.  Here we go with judgment again.

NAR is not helping in all this mess.  I am sorry 15% of their deals fail due to low appraisals.  I am also sorry to see FHA properties sold 18 months ago with 5% down underwater.  Sorry but a BPO that carries no responsibility or liability does not do it for me.  Tired of Realtors that sell fewer properties in a year than I look at in a week telling me they know the market better than I do.
There is no easy fix to this mess….

The responsibility of an appraiser is understated when it comes to compensation and overstated when an underwriter makes a bad judgment”.

— Joe Johnson, Certified Residential Appraiser, Florida

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And The Most Popular Residential Appraisal Software is…

As we reported in our last newsletter, alamode had a substantial lead and they did in fact prove to be the most popular software with 6,528 respondents at the completion of the poll.  A link to a bar graph depicting the results is found here: AppraisalPort Poll Results

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The Appraisal Institute Issues Press Release Cautioning Appraisers About Signing Some Agreements with AMCs

On May 12th, the Appraisal Institute issued a warning to appraisers in regard to some of the agreements they are asked to sign by appraisal management companies (AMCs) which “…seek to hold residential appraisers responsible for AMCs’ actions”.  Joseph C. Magdziarz, President of the Appraisal Institute, is quoted in the press release as saying that: “Appraisers should be very careful about signing any agreement, especially one that makes them responsible for another party’s actions.  While there are some fine AMCs doing business today, many AMCs shift liability onto appraisers. For many professional appraisers, it’s simply not worth the risk.”

A link to the entire press release is found here: Mortgage Forms Should Include More Transparency, Appraisal Institute Tells Federal Reserve

Additional information about the Appraisal Institute can be found by going to their website:

http://www.appraisalinstitute.org

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Rates & Dates

Both Freddie Mac and the Mortgage Bankers Association (MBA) again reported interest rate declines in their most recent reports.

Freddie Mac reported that rates for 30-year fixed-rate mortgages decreased to 4.61% for the week ending May 19th from the 4.63% rate reported on May 12th.

The MBA in its most recent Weekly Mortgage Applications Survey for the week ending May 13th reported a drop in its average to 4.60% from the previous week’s rate of 4.67%.

In their press release of May 18th, the MBA also reported a 7.8% increase in mortgage applications during this most recent week and they went on to say that:
“…On an unadjusted basis, the Index increased 7.1 percent compared with the previous week. The Refinance Index increased 13.2 percent from the previous week and is at its highest level since the week ending December 10, 2010. The seasonally adjusted Purchase Index decreased 3.2 percent from one week earlier. The unadjusted Purchase Index decreased 3.3 percent compared with the previous week and was 1.7 percent lower than the same week one year ago”.

The MBA noted that the percentage of mortgage applications attributed to refinances rose to 66.7% of the total, up from 63.1% during the prior week.

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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Ask Angie

We want to congratulate our most recent winner: Tom Martin, an appraiser with the Virginia Appraisal Group in Petersburg, Virginia. He was the first to accurately answer that Oscar Wilde was the author of the quote “All women become like their mothers. That is their tragedy. No man does. That’s his”, Winston Churchill proclaimed that “Americans can always be counted on to do the right things after they have exhausted all possibilities” and that Thomas Edison said “Many of life’s failures are people who had not realized how close they were to success when they gave up”.

Today’s questions:

1. Who said: “Of course the game is rigged. Don’t let that stop you-if you don’t play, you can’t win.”

a) Robert A. Heinlein

b) Lloyd Blankfein

c) Angelo Mozilo

d) Donald Trump

e) None of the above

2. Who said: “If past history was all there was to the game, the richest people would be librarians.”

a) Nancy Pearl

b) Warren Buffett

c) David Hume

d) Benjamin Franklin

e) Alex Trebek

3. Who said: “Start out with an ideal and end up with a deal”

a) Benjamin Franklin

b) Thomas Edison

c) Richard Nixon

d) Sarah Palin

e) Nancy Pelosi

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 12/10 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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