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Housing Death Spiral?

November 7th, 2011 by Bill Collins Leave a reply »

Appraiser News Headline from One Year Ago: "Double Dip in Housing: Has it Clearly Arrived?"

We thought it might be interesting to go back into the archives and take a look at the issue from October 26th, 2010 (which anybody can do by going to and see how things have changed since then.

Not surprisingly, as you can see by the headline, not much has changed except for the use of the phrase “Triple Dip” in many of the housing reports now.  We noted that Lawrence Yun, the Chief Economist for the National Association of Realtors (NAR) had proclaimed one day earlier that:

“A housing recovery is taking place but will be choppy at times depending on the duration and impact of a foreclosure moratorium. But the overall direction should be a gradual rising trend in home sales with buyers responding to historically low mortgage interest rates and very favorable affordability conditions”.

In that issue, we also noted the optimistic comments made by HUD Secretary Shaun Donovan about the housing market showing significant signs of improvement. viewed the situation differently, however, as our sections for that issue were titled: “The Foreclosure Crisis: Beginning of Another Meltdown?” and “Time to Stop Pretending and Acknowledge the Crisis”.

The following issue of on November 8th, 2010 included a section titled “The Foreclosure Crisis is Not Going Away Soon” and included this reader comment from Wisconsin appraiser Doug Quenzer:

“In 2008 Yun was spouting that the housing market had bottomed and we would start to see prices stabilize. I wrote a letter to the REALTOR magazine and told them he was crazy. Look what has happened since! Now he continues to say that the market is starting to turn around because of September sales…How can the housing market possibly recover when the supply exceeds the demand? This is economics 101, and Yun is a prime example of someone that is living in lala land…Most people that are honest will say that over all the housing market will take about two to three more years to see real recovery. And that needs to be qualified with a caveat which is economic recovery.”

In that November 8th, 2010 issue of we discussed the thoughts of the prominent economist Nouriel Roubini and noted “…the falsely optimistic tendencies of many interested (and disinterested) parties towards the economic, housing and foreclosure crises that we are facing.” 

The elephant is still in the room and those who could take positive actions to assist the housing market are either ignoring the situation or proposing actions which would make the situation worse.  Where will we be one year from now? It is our opinion that this slow deterioration of the housing market might begin to accelerate into something worse this winter and then…

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Headline News This Past Week

On November 3rd, Clear Capital’s Home Data Index for October was down 2.8% nationally, the 13th straight month of falling prices.  Dr. Alex Villacorta, Director of Research and Analytics at Clear Capital, somberly noted that: “Short term gains have been nearly eliminated while longer term performance measures point to mostly negative territory through the turn of the year.  With current tepid demand expected to weaken even more, consumer confidence at record lows, and as the distressed inventory continues to flow into the market, we can expect another long winter as the housing market will truly be put to the test against these downward forces.”

A link to the Clear Capital press release is found here: Clear Capital Newsroom: Market Report

Yesterday, CoreLogic’s Home Price Index showed declines of -1.1% from the prior month and -4.1% from the prior year.  Mark Fleming, chief economist for CoreLogic stated that:
“Even with low interest rates, demand for houses remains muted. Home sales are down in September and the inventory of homes for sale remains elevated. Home prices are adjusting to correct for the supply-demand imbalance and we expect declines to continue through the winter. Distressed sales remain a significant share of homes that do sell and are driving home prices overall.”

A link to yesterday’s CoreLogic press release is found here: CoreLogic September Home Price Index Shows Second Consecutive Month-Over-Month and Year-Over-Year Decline

Fitch Ratings also released a report yesterday which noted a significant increase in foreclosure start rates on delinquent mortgages and how this increased inventory of distressed properties on the market would further depress prices.  A link to the Fitch report is found here: Fitch Ratings: Foreclosure Starts Rising; U.S. Home Prices Will Feel the Effects

Another report released yesterday, this one by Trepp LLC, discussed how soured commercial real estate loans were the root cause of the 11 banks that failed in the U.S. during October.  Kerry Panchuk of reported yesterday that Trepp said non-performing commercial real estate loans made up approximately 2/3 of the total non-performing loans of these failed institutions.  This report by Trepp was not unlike September’s report and others earlier this year where they linked bank failures primarily with bad commercial real estate loans. 

Writing in Huff Post Business on Sunday, Robert Kuttner discussed his dislike for the term “The Great Recession” because it is “…not an ordinary recession, not even a great one. It is a period of protracted deflation, where weak demand, declining incomes, and falling asset prices keep dragging the economy downward into a self-deepening sinkhole.”  In regard to housing, he contrasts current efforts with those made during the Great Depression: “The Roosevelt administration dealt forthrightly with the housing crisis of that era, creating a Home Owners Loan Corporation that made direct loans to one homeowner in five, to keep people from losing their homes. In the current crisis, some 10 million homeowners are still on track to default, and the Obama administration keeps producing half-measures too feeble to solve the problem.”
A link to Mr. Kuttner’s report is found here: The Great Deflation

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Wall Street Yes, Main Street No?

Interesting comment by Neil Barofsky, former head of the Troubled Assets Relief Program (TARP): “There’s a very popular conception out there that the bailout was done with a tremendous amount of firepower and focus on saving the largest Wall Street institutions but with very little regard for Main Street. $700 billion fund used to bail out banks. That’s actually a very accurate description of what happened.”  Writing in the Washington Post yesterday, Zachary Goldfarb described how Wall Street has come back strong even as Main Street has struggled under Presidents Bush and Obama and a link to this article is found here: Wall Street Surges Under Obama

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Real Solutions Anyone? Many Say Mortgage Principal Reduction is Essential to Solving Problems, Others Say Nothing

On November 4th, the New York Times’ Joe Nocera discussed the increasing evidence that loan principal reduction is central to any solution of the housing mess.  He discusses the “shocking calculations” described by Laurie Goodman, a senior managing director at Amherst Securities and an authority on mortgage-backed securities. Here are some of those calculations and data that Ms. Goodman is concerned with:

Firstly: 10 million of the 55 million mortgages in America are “reasonably likely to default” largely due to the fact that the homes are worth so much less than the existing mortgages.

Secondly: The housing supply will “drastically outstrip demand” over the next half decade and beyond with the possibility that the glut of homes could reach 6.2 million in the next six years.  This basic supply/demand imbalance (remember Economics 101, a refresher course in which many aspiring presidential hopefuls desperately need to take)  would recreate the “housing death spiral” with lower prices leading to more underwater borrowers leading to more defaults leading to further price declines, and on and on.

Mr. Nocera concludes his article by saying that: “It is about cold, hard economics. Three years after the bursting of the subprime bubble, principal reduction isn’t just a nice-sounding way to help homeowners. It is our only hope of finally ending the housing crisis.”

A link to the Times’ article is found here:
To Fix Housing, See the Data

On November 4th, Bloomberg’s Jody Shenn and Kelly Bit discussed this issue of principal reduction and a link to their report is found here: Greg Lippmann Calls for Mortgage Forgiveness After Winning Subprime Wagers

CNBC’s Diana Olick, in a short video, discussed the manner in which the Republican presidential aspirants were dodging the issue of the housing crisis and a link to this is found here: GOP Candidates Position on Housing

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Status of the Appraisal Profession

We receive many comments from appraisers describing the difficult and stressful working conditions they face dealing with appraisal management companies, distressed/bankrupt homeowners, delayed payments by clients, etc.  One email we received from a Washington appraiser kind of summed it all up: 
“I dun runnoft”

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Rates & Dates

Mortgage interest rates mostly moved downward in the most recent weekly reports issued by Freddie Mac and the Mortgage Bankers Association (MBA).

Freddie Mac reported that rates for 30-year fixed-rate mortgages declined to 4.0% for the week ending November 3rd, the second lowest in history, a drop from 4.10% during the previous week.   Frank Nothaft, vice president and chief economist for Freddie Mac noted that "Market concerns over the European debt market drew investors to U.S. Treasury securities, lowering bond yields and mortgage rates”.

The MBA in its most recent Weekly Mortgage Applications Survey for the week ending October 28th reported that 30 year rates with conforming loan balances ($417,500 or less) decreased to 4.31% from 4.33% during the previous week.   The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.69 percent from 4.68 percent.

In their press release of November 2nd, the MBA also reported a 0.2% increase in mortgage applications during this most recent week with refinance activity accounting for 77.1% of applications. 

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 would like to contratulate our two repeat winners, both from New England: Nanci Stone-Hayes, a Certified General Appraiser with Yankee Appraisals in North Conway, New Hampshire and Larry Kelly, a Certified Residential Appraiser with Larry Kelly Appraisal Service in Fairfield, Connecticut. Nanci covers portions of northeastern New Hampshire and southwestern Maine while Larry covers Fairfield County in Southwestern Connecticut.

Here are the answers to last week’s contest: Lane Kirkland was the author of the quote “If hard work were such a wonderful thing, surely the rich would have kept it all to themselves”; Benjamin Disraeli said “How much easier it is to be critical than to be correct”; and the Beatles sang “Number 9, number 9, number 9…”

It appears as though not everyone likes Angie, alas.  We received this comment from a Maryland appraiser: “Why would you not ask appraisal —underwriting questions so everyone could learn perhaps something new instead of "TRIVIA"?  I breeze right part this portion of your newsletter, because I need to keep up with issues and reporting and NOT trivia…DAH… have a great capacity to teach as each edition goes to press….why waste space?  Just my 2 cents after 34 years in the business.”

Angie says that she will toughen up the questions when the appraisal business becomes a bit easier (if this ever happens), right now everybody is under too much stress. 

Today’s questions:

1. Who Said: "Anyone who watches golf on television would enjoy watching the grass grow on the greens."

a) Andy Rooney
b) Arnold Palmer
c) Michael Weakland
d) Jerry Seinfeld
e) None of the above

2. Who said: "Taxes are important. President Bush’s tax proposals leave no rich person behind. Voters approve of President Bush helping the kind of people they wish they were one of."

a) Warren Buffet
b) Andy Rooney
c) Nancy Pelosi
d) Sarah Palin
e) None of the above

3. Who said: "I didn’t get old on purpose, it just happened. If you’re lucky, it could happen to you."

a) Zsa Zsa Gabor
b) Phyllis Diller
c) Andy Rooney
d) Jeanne Calment
e) None of the above

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

One Free Regular Listing on

A Free Copy of the Directory of Appraisal Management Companies (Available Now to Members of and 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: 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


Bill Collins, Appraiser Help Inc.

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