As the housing market receded, low appraisals seemed to be the rule; lower priced comparables were often to blame. As home sellers and their real estate agents become accustomed to the new market, some within the real estate industry continue to complain that low appraisals are still an issue that interferes with the housing market recovery. Many blame low appraisals for keeping home values down as well as killing pending deals.
A recent article by syndicated columnist Ken Harney (House sales hampered by appraisers who fail to recognize appreciation) brought attention to a growing issue that many claim is impeding a housing market recovery. It is clear that appraisers exercise caution and seek the conservative value, which is to avoid liability for the lender having to buy back a loan that does not comply with guidelines. However, another issue that Harney pointed out was the reliance on appraisal management companies.
If you remember, in response to claims of inflated appraisal values due to lender coercion and “undue influence,” the Home Valuation Code of Conduct (HVCC) was implemented for mortgages bought by Fannie Mae and Freddie Mac (then later by FHA). The intention of implementing these new standards of practice was to establish increased accountability and independence in the appraisal industry. One issue that was addressed was to limit communications between the lender and appraiser. As a result, many lenders resorted to using Appraisal Management Companies (AMC) to order and review appraisals.
In rush to meet the new HVCC compliance measures, lenders initially believed they needed to use the AMC to manage appraisals. However, that was not a direct requirement and some lenders have since moved away from using AMCs; subsequently implementing in-house appraisal management systems. Some lenders, however, still rely on the AMC appraisal “middle man” to assign and review appraisals.
Much of the criticism of the AMC is that they are sometimes located quite a distance away from the subject property. Appraisal reviewers who do not have the local experience and data to understand distant markets may make valuation mistakes.
Just as quick as the lending industry moved to comply with HVCC, the pendulum has swung in the opposite direction – there are some reports of appraisers being coerced to “revise” appraisal values down. If the value is not considered within the lender’s “guidelines,” the appraiser may be requested to revise the valuation prior to submitting to the lender.
Testimony provided to the House Committee on Financial Services hearings on “Appraisal Oversight: The Regulatory Impact on Consumers and Businesses” (June 28th), Francois (Frank) Gregoir, for The National Association of Realtors®, stated: “There are a myriad of circumstances and issues working to hinder the recovery of the nation’s housing market. Among them… are those related to the credible valuation of real property…However, in today’s world there are many road blocks in the way of valuing property and, as a result, allowing for a healthy recovery of the broader real estate industry. Because there are many roadblocks there is no one, “silver bullet” solution.”
Regardless of where blame lay for low appraisals, the outcome and effect on the housing market is clear: some pending sales are falling out; some home buyers are paying additional funds to cover differences between a low appraisal and contract price; and some sellers are pulling homes off the market.
This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.
As a real estate agent, I often encounter people who talk about common and persistent real estate myths. In recent years, these few seem to be among the top myths:
Anderson & Harris, in their reveling study Timing the market: You don’t have to be perfect (Real Estate Issues 35, (3) (10): 42-42-50) indicated that you don’t have to be perfect when timing your purchase and sale of a home. They suggested that you could do just as well to aim your sale during market peaks and your purchase during market lows; however, they conceded that you would most likely know in hindsight when the market is at a peak or low.
Their results demonstrated that the typical “buy and hold strategy” over a thirty year period results in an annualized return of 8.18%; however, buying when a recession has ended with a predetermined sale period yields a wide range of return that ranged from 13.38% to 1.42% annualized total return.
There is inherent risk when purchasing distressed homes, regardless if they are foreclosures, bank owned homes, or even short sales. Although short sales are often occupied, foreclosures and bank owned homes are often vacant for many months; these homes are often sold “as-is; where is” meaning you are purchasing the home regardless of the condition of the home.
Besides the purchase and anticipated fix up costs, unanticipated repairs and expenses are often encountered. However without risk, there is no reward; due diligence, conducting inspections, and hiring the proper representation may reduce the risk and make your purchase a positive experience.
I have never had a home buyer tell me they want to see (or buy) a home because it is listed by a particular agent or broker. Rather, home buyers typically search homes by price, physical characteristics, amenities, and/or location. Home buyers will view your home if it matches their search criteria, regardless of who listed your home.
When interviewing listing agents, look beyond the sales pitch to list your home, and ask for real data and sources to back up claims. Agents will often not discuss the homes they could not sell; asking about the homes that did not sell as well as the reasons behind the non-sale may be more revealing than flatly accepting claims made by the agent. Asking for references of satisfied clients of homes that sold as well as homes that did not sell is useful to not only get a recommendation, but also understand how the agent conducts business. Ultimately, your home purchase or sale falls upon the experience and skill of the agent you hire.
Last week’s Wall Street Journal report that the housing bust is over has grabbed everyone’s attention (Housing Passes a Milestone; wsj.com). The WSJ reported that of forty-seven “forecasters” surveyed, forty-four believe that the housing market has bottomed out. There are several factors cited by these “experts” as rationale for the stating the bust is over, as well as asserting that the housing market will not be a further drag on the economy. However, many experts may be missing some data points; as well as not recognizing causality.
Although the U.S. housing bust may be over (for now), as experts proclaim; other regions of the world are struggling. Two of the most influential economic regions, Europe and China, are experiencing real estate slumps.
According to a May 31st report in The Economist (Downdraft: European house prices are finding it harder to defy gravity), global house-price indicators point to increased volatility. Although, Europe’s housing markets experienced similar declines we experienced during the financial crisis; individual countries differed in their housing outcomes. Troubled economies, such as Ireland and Spain, continue to have lagging housing markets. Ireland’s already depreciated home prices are reportedly continuing to drop; while Spain’s home prices are reportedly over valued while prices also continue to drop. However, Germany, France, and Belgium’s housing bounced back relatively quickly and reportedly appreciated through last year.
However, as recession looms and unemployment increases in the Eurozone; The Economist reported that the pace of housing depreciation increased in weaker countries, while housing appreciation stalled in Germany and France.
The other big economy that may also show signs of stalling is China. China’s recent GDP growth was reported to be 7.9%. From a bustling economy that reported GDP growth over 10% in 2010, and GDP growth over 9% in 2011, the shrinking GDP may be a signal. Although overall Chinese housing prices are reportedly flat, some have reported that some provinces have experienced as much as a 30% drop.
Although the Chinese housing market is a bit different than the U.S., (private property ownership is a relatively recent development); albeit volatile, housing is a component of the Chinese economy. A December 2011 report by Patrick Chovanec in Foreign Affairs (China’s Real Estate Bubble May Have Just Popped) indicated that Beijing new home prices dropped 35% in November 2011. Property agencies reported that new home inventories are building and buyers are hard to find.
Additionally, The China Perspective reported in January that re-sale home sales volume dropped about 23%. As a result, real estate agencies are closing offices. It was reported that an average 3.8 offices closed daily in Beijing; while the number of real estate agency offices in Shanghai has been reduced 40% since their housing peak.
As other global housing markets stall, there may be a silver lining. The devaluation of residential real estate abroad has attracted foreign investors to U.S. housing. Although international buyers have bought homes at all price levels, the luxury real estate market seems to be attracting most attention.
But back to what the experts proclaim as the bottom of the market – yes there are some positive signs, but it’s too early to tell if the bust is over. And although these experts proclaim that housing will no longer drag the economy; the reality may be that it’s the economy that’s dragging the housing market.
Home buyers are looking to home builders to fill the void in low home inventory; new home builders seizing opportunity to capitalize on housing market conditions.
If you’re a frustrated home buyer actively looking to for a house, you may have realized that the pickings are slim. You’re not alone if you feel exasperated after months of looking for your dream home; you may have also lost out in a multi-offer scenario. If you feel you’re ready to give up for and rent, take heart; home builders are jumping in to fill the void.
Even the National Association of Realtors® (June 21st) reported that the limited housing inventory has held back sales of existing homes. Chief NAR Economist, Lawrence Yun stated in the press release, “The slight pullback in monthly home sales is more likely due to supply constraints rather than softening demand. The normal seasonal upturn in inventory did not occur this spring… (realtor.org).
According to the NAR, total housing inventory decreased 0.4%, which resulted in about 2.49 million existing homes for sale (or about a 6.6 month supply). Furthermore, housing inventory is 20.4% less than the same time last year; when there was a 9.1 month supply of homes for sale.
Local inventory numbers reported by the Greater Capital Area Association of Realtors® (gcaar.com) is consistent with the national decrease in housing inventory. GCAAR reported that year to date listings through May of single family homes in Montgomery County is about 18.7% lower than listings from the prior year through the same period.
Although the shortage of home listings seems to be holding back the re-sale market, home builders appear to be seizing on an opportunity; new single family home sales are at a two year high, according to Reuters (New home sales race to two-year high in May; June 25, 2012). Many home buyers, dissatisfied with existing homes listed for sale, are opting to purchase new.
The National Association of Home Builders (nahb.com) reported on June 18th that home builder confidence is at its highest since May 2007. And why not? Home builders are capitalizing on what seems to be a stagnant re-sale market. Increased sales are coming from those disappointed home buyers who cannot find a re-sale home but want to take advantage of the combined low prices and mortgage interest rates.
Clients of new home builders are also finding there are additional benefits to owning a brand new home: In addition to having new systems, many components are energy efficient; floor plans tend to be contemporary; and exterior designs are trendy. Another benefit of buying “new” is that, unless the home is not spec (already built, often a model home), you may have an opportunity to choose finishes and upgrades; everything will be ready for you to move in. What’s more is that you typically get warranties on the appliances and systems in a new home, so if something doesn’t work properly you can usually get it fixed – as long as it is covered and within the warranty period.
If you’ve not yet looked into purchasing a new home, ask your real estate agent for ideas of what’s available in new home communities, custom homes, or through spec builders. Home builders often list their inventory in the local MLS as well as advertising on various websites. When you visit a home builder, take your agent along with you; they may have knowledge of buyer incentives and closeout models that builders are trying to sell first.
Unlike recent years, when we experienced blizzards, earthquakes, and hurricanes, this year’s weather has been mild thus far – that is until last week. Although the disasters and emergencies we typically experience are usually local and often weather related; disasters/emergencies can also originate from other sources, such as: power outages, terrorism, wildfires, civil unrest, earthquakes, and pandemic health concerns. Even though we had some warning of the approaching storm, the after effects emphasize the need for preparedness.
If you don’t yet have a plan (or would like to update your current plan), preparedness information is available through Federal Agencies such as the Federal Emergency Management Agency (FEMA.gov), the Department of Homeland Security (dhs.gov), and the Centers for Diseases Control (cdc.gov), and Citizen Corps (citizencorps.gov) .
FEMA’s “Are You Ready? An In-depth Guide to Citizen Preparedness” is a comprehensive source on individual, family and community preparedness. In addition to the pamphlet, there is an interactive guide with the focus “on how to develop, practice, and maintain emergency plans that reflect what must be done before, during, and after a disaster/emergency to protect people and their property” (www.ready.gov/are-you-ready-guide).
Montgomery County’s Office of Emergency Management and Homeland Security offers advice on planning and preparing a disaster kit, as well as recommending to sign up for “Alert Montgomery,” which can alert you to emergencies by text messages, twitter, email and other devices (www.montgomerycountymd.gov/oemtmpl.asp?url=/content/homelandsecurity/index.asp).
Preparing for disaster/emergency also includes making sure your property insurance is adequate. Having the proper coverage may help you recover from a disaster quicker than those without coverage. Experts recommend that you review your home owners’ policy with your insurance agent (or insurance company representative) to make sure your coverage is up to date and is able to replace your home and/or possessions in case of a catastrophic loss.
Additional recommendations to mitigate damage from weather related disaster/emergency come from the American Insurance Association (aiadc.org). Your home can be prepared by ensuring that doors and windows are secure; ensuring that exterior doors should have at least three hinges and a deadbolt length of at least one inch; replacing older garage doors and windows for systems that are certified for wind and impact; consider storm shutter installation; repairing any cracks or leaks around windows, doors, roof, exterior walls and foundation; ensuring that gutters and downspouts are secure and can drain water at least five feet from your home; inspect the roof and repair if necessary; remove loose debris from around the home; remove dead or dying trees and shrubs; trim back tree limbs from your home’s exterior and roof; compile an inventory of your home’s contents by taking pictures or video.
Recognize your risks and plan accordingly. FEMA offers mitigation and risk planning resources such as: flood maps, loss mitigation software, and the risk management series. Along with these resources, FEMA offers specific advice on protecting your home or business from natural disasters, earthquakes, fire, flood and high winds (www.fema.gov/plan/prevent/howto/index.shtm).
And if you’ve yet prepared for the Zombie Apocalypse, the Centers for Disease Control and Prevention remarks that “it’s better to be safe than sorry.” The CDC offers “Preparedness 101: Zombie Apocalypse:” preparedness for the Zombie Apocalypse and real emergencies (blogs.cdc.gov/publichealthmatters/2011/05/preparedness-101-zombie-apocalypse).
