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Time to Prepare for Housing Market Collapse?

June 5th, 2012 by Bill Collins Leave a reply »

Is It Time To Prepare For The Coming Housing Collapse?

Those predicting a boom, or at least improving market conditions: See the comments by Freddie Mac’s chief economist Frank Nothaft later in this newsletter.  You can also visit the chief economist of the National Association of Realtors at his kool aid stand, a link to which is found here: Pending Home Sales Decline in April but Up Strongly From a Year Ago

On the other hand, Keith Jurow (author of Minyanville.com’s Housing Market Report) stated in a post on Business Insider last Wednesday that:

“…I am convinced that things will get ugly from here and that there is no solution that can prevent this collapse. The wisest thing for you to do is prepare for the worst. Is there anything wrong with renting a nice house or condo to ride out this perfect storm?”

Some of the underlying factors and examples cited by Mr. Jurow include:

~The rising “shadow inventory” and serious increases in mortgage delinquencies. An example cited by the author is that of Long Island where at the end of March, 175,000 pre-foreclosure notices had been sent out in Nassau and Suffolk Counties, which have fewer than 3 million occupants.

~The huge number of properties with second liens. Mr. Jurow writes:
“What has been almost completely overlooked by the media is the enormous number of properties with second liens. There are still nearly 12 million home equity lines of credit (HELOC) outstanding. It’s safe to say that 98 percent or more of these properties are underwater. Roughly 30 percent of all HELOCs were originated in California. There are millions of owners there with HELOC balances in excess of $100,000.

The HELOC boom began in 2003. Most of these revolving lines of credit were interest-only loans for the first ten years. After that, they convert into 15-year fully amortizing loans. This means that beginning next year, these loans start to transform into a fully-amortizing loan. The number of HELOCs which do this increases in 2014 and even more in 2015 and 2016.

What will these homeowners do when their HELOC payment soars from a few hundred dollars per month to more than $1,000. The monthly payments that will go into effect in California are mind-boggling."

~Millions of homes taken off the market by homeowners who have pulled their homes off the market, unwilling to take the “hit” of a short sale, many of which will come back on the market either willingly or unwillingly.  Mr. Jurow notes the recent survey by ProTeck Valuation Services which shows that MLS listings had declined more than 35% in areas such as Phoenix, Miami, Atlanta, Orlando, Tampa and Riverside with many listings removed from the market due to being severely “underwater."

~Disappearance of the “trade-up” buyer. Numerous studies (National Association of Realtors, Inside Mortgage Finance, etc.) have noted that approximately 1/3 of purchases nationally are by investors.  The trade-up buyer, described by Mr. Jurow as those within the 30 to 60 age bracket, has disappeared.  The reasons for this would appear to include general concerns about the real estate market along with lack of mobility related to the inability to find a job or sell a house.

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Keith Jurow’s Recommendation..and Final Warning

“My advice to homeowners in nearly all major metros is quite simple. Get an appraisal from a professional appraiser (emphasis added by AppraiserNews.com) to find out what the market value of your home is. Seriously consider putting your home on the market within the next six months. You will have a chance of selling it.

Within a year, I expect many of the weakest markets to show signs of unraveling. Perhaps the most vulnerable market is the entire NYC metro area. Sooner or later, the banks will have to start foreclosing or even doing short sales. When these properties hit the market in significant numbers, I have no doubt that prices in the entire region – where 19 million people reside – will collapse”.

A link to the entire report by Mr. Jurow is found here: Another Housing Collapse is Coming Soon

Zillow’s Negative Equity Report released on May 23rd indicated that 15.7 million U.S. homeowners were underwater in the first quarter of this year.  This is reportedly 31.4% of homeowners with a mortgage.  The report also noted that 2.4 million homeowners owed more than twice what their home is worth.  Zillow also noted that more than 9 out of every 10 underwater homeowners are current on their mortgages.
A link to Zillow’s interactive map which allows breakdowns by county or zip code is found here: Where Are Home Loans Underwater?

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Is The Commercial Real Estate Market Following the Residential?

Lots of nervousness in the commercial real estate market.  Trepp LLC reported last week that the delinquency rate for commercial mortgage-backed securities (CMBS) had reached an all time high of 10.04% in May. Eliot Brown writing in the Wall Street Journal last Thursday noted that Trepp reported much of the problem related to five-year loans made in 2007 that were coming due.  The report cited Trepp’s calculation that $59 billion in CMBS loans were past due with many property owners unable to find new loans to replace them.

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AppraiserNews is a FREE publication, supported by advertising and sales of products designed to help appraisers build their practices. Please consider supporting us today by seeing what we have to offer.

The All New, Fully Revised Directory of AMCs and National Appraisal Companies is now available for download! Please visit our website to learn more. Current members of our Appraiser Directories are eligible to receive their copies FREE!


NAR Reports Improvement in All Commercial Real Estate Sectors..But Has Concerns Regarding Commercial Property Under $2.5 Million

On May 24th, the NAR released a report in which they said the “fundamentals are gradually improving in all of the major commercial real estate sectors”.  Their enthusiasm, however, was dampened somewhat by what they called a “large problem” with the availability of funding for commercial property under $2.5 million.  A link to the NAR report is found here: All Commercial Real Estate Sectors Continue to Improve, Multifamily Strong

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AppraiserNews is a FREE publication, supported by advertising and sales of products designed to help appraisers support and grow their businesses. Please consider supporting us today by seeing what we and our sponsors have to offer.


Start saving up to 20% off of your continuing education course fees today with McKissock and Appraiser Help! 2012-2013 USPAP Courses Now Available!


This Week’s Social Media Recommendation

Interested in graphical depictions of economic and financial market data?  Check out Bloomberg reporter Tom Keene on Pinterest: Tom Keene’s Pinterest

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Other Recent Real Estate Reports

RealtyTrac reported last week that homes in some stage of foreclosure accounted for 26% of all sales, up from 22% in the previous quarter and 25% one year ago. A link to a May 31st report by CNNMoney’s Jessica Dickler which discusses this is found here: Foreclosures Made Up 26% of All Home Sales in First Quarter

Last week, the S&P/Case-Shiller report for the first quarter of 2012 indicated that prices had declined nationally by 2.57% from one year ago and reached new “post-crisis” lows.  Several commentators found positives in the report, however, noting that the pace of decline was lessening and a number of areas reported price improvement.

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"A Tale of Two Markets:" Mega Homes Surge

Last Thursday, CNBC’s reporter and editor Robert Frank discussed how the real estate market was “splitting in two” in an article with the above title. Mr. Rich discussed the fact that while the rest of the real estate market struggled, markets with median home prices of $1 million or more were seeing significant year to year price increases.  He cited a study by Altos Research which indicated that in these markets, during the past year prices were up more than 10% and inventories were down 10%.  The article also noted how the “hyper wealthy market” was doing even better, citing an Altos report that markets with median prices of $10 million or more were showing year to year price increases of 13% or more.  A link to the CNBC report is found here: A Tale of Two Markets: Mega Homes Surge

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Rates & Dates

Mortgage interest rates declined to historic lows in the most recent weekly reports issued by Freddie Mac and the Mortgage Bankers Association (MBA).

On May 31st, Freddie Mac reported that 30-year fixed-rate mortgages declined to a record low 3.75% from the previous week’s 3.78%.  They also noted that last year at this time the 30-year rate was at 4.60%. 

Frank Nothaft, chief economist for Freddie Mac was quoted as saying: "Mortgage rates were virtually unchanged this week with fixed-rate loans remaining at record lows and helping to drive homebuyer affordability. The National Association of Realtor’s Housing Affordability Index reached an all-time record high in the first quarter of this year since records began in 1970. In April, existing home sales rose to the highest rate since January with an annualized rate of 4.62 million homes with purchases increasing in all four Census Regions. Similarly, sales of new homes also rose last month, beating the market consensus forecast. In addition, the Federal Housing Finance Agency purchase-only house price index rose 0.4 between the first quarter of 2011 and 2012 and represented the first 4-quarter increase since the first quarter of 2007.”

The MBA in its most recent Weekly Mortgage Applications Survey released May 30th for the week ending May 25th, reported that 30-year rates with conforming loan balances ($417,500 or less) declined to a historically low 3.91% from the previous week’s 3.93%.   The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) also decreased to 4.25% from 4.23% in the prior week.  At the same time, the average rates for FHA backed mortgages fell to a historic low of 3.70% from the 3.73% rate reported last week.

In their press release of May 30th, the MBA also reported a decrease of 1.3% in mortgage applications during this most recent survey.  Refinance applications remained at the same rate as the previous week (76.6%) of total applications. One week earlier, the MBA revised upward its 2012 mortgage origination forecast, announcing that originations should reach $1.28 trillion (an increase by almost $200 billion over earlier forecasts) and surpass the $1.26 trillion in 2011.  They noted that this was entirely due to an increase in refinances with the MBA also announcing a lowering of purchase originations forecast for 2012 from $415 billion to $409 billion.

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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AppraiserNews is a FREE publication, supported by advertising and sales of products designed to help appraisers build their practices. Please consider supporting us today by seeing what we have to offer.

The All New, Fully Revised Directory of AMCs and National Appraisal Companies is now available for download! Please visit our website to learn more. Current members of our Appraiser Directories are eligible to receive their copies FREE!


Ask Angie

We would like to congratulate California appraiser Richard Porubski who was the winner of the last contest. Richard knew that John Lennon once said I don’t know how much money I’ve got…. I did ask the accountant how much it came to. I wrote it down on a bit of paper. But I’ve lost the bit of paper”; Josh Rosner noted that “A home without equity is just a rental with debt”; and that none of the possible four people suggested are responsible for the quote “My subconscious has a mind of its own.”  Today’s questions:

1. Who said: "We are the flies that have captured the flypaper," and to whom is it attributed?

a) John Steinbeck/James Reston
b) Mark Zuckerberg/Sheryl Sandberg
c) John Lennon/Yoko Ono

d) Fredrick Kaiser/Lin Liu
e) None of the above

2. Who said: "All great changes are preceded by chaos."

a) Deepak Chopra
b) John Cheever
c) Pablo Picasso
d) Steve Martin
e) None of the above

3. Who said: "By changing nothing, nothing changes."

a) Tony Robbins
b) Leo Tolstoy
c) George Bernard Shaw
d) David Stevens
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 AppraiserHelp.com

A Free Copy of the NEWLY RELEASED 2012 Directory of AMCs and National Appraisal Companies!

 

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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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