Another Hurdle to Housing Rebound

The budget put forth by President Obama contains many suspect items, but a plan to reduce or limit the mortgage interest deductions is could be devastating to the already teetering real estate industry.

If the administration is making effort to stabilize the real estate industry and housing prices, any barriers placed by governmental intervention is not productive.

FOX Business's David Asman and Liz Claman discuss this with Dr. Jeff Gardere, The Real Estate Doctor. Take a listen:

CNBC's House of Cards Required Viewing

While our governmental leadership continues to throw money all over the countryside without attacking the real problem with the economy, the problems remain as a very serious impediment to economic recovery.

The problem is the fallout of over leveraging by financial institutions in their purchase of toxic mortgages, or derivatives containing these extremely over leveraged mortgages. If you have had trouble keeping your eye on ball on this subject, you are in good company.

Recently, CNBC put together an outstanding overview of many of the aspects of the housing crisis, which whether you realize it or not, directly effects you and your family. David Faber is the host of CNBC's House of Cards. CNBC has put together several outstanding documentaries in recent years and this one is among the best.

Certainly, whether you are an individual involved in the real estate industry or a citizen interested in keeping up with the things that impact your economic health, this is required viewing. Check your local listings as it will continue to be re-broadcast from time to time.

Fannie Squeezes Condo Loan Requirements

The statistics detailing the carnage of the housing crisis is daunting and not for the faint of heart. Although single family improvements, in the form of houses, have been clobbered, the condo market is in shatters.

Although many condo projects, particularly those built as condos rather than apartment conversions, had a minimum percentage of available units which could be sold to investors, and clearly those in charge relaxed those requirements.

Now, with an incredible overhang of distressed (foreclosed on, short sale or pre-foreclosure) condo units for sale, values are stung with negative pricing pressures which could sink the most savvy investors, and almost all are "under water".

The only hope is for the existing inventory, now with prices that are quite affordable and attractive, to be burned off in the form of sales.

Enter Fannie Mae, or the Federal National Mortgage Association, which has installed new stricter guidelines on condo sales escalating the already monumental degree of difficulty in moving these properties.

Among the changes which will dramatically effect sales is that Fannie Mae is requiring that of a building's unit owners, no more than 15% may be delinquent on association fees as a condition of funding home loans to new buyers. That practically takes Fannie Mae off the table.

I own a condo, built as a condominium complex, in a centrally located area of southeast Orlando. The amount of building owners delinquent on association fees far exceeds 15%, and this well built complex is a leader in the area.

Most condo sales are cash only these days anyhow, but these requirements, along with a jump from 50% to 70% of the units as sold or under contract, has essentially eliminated Fannie Mae from the condo market. If the goal is to work off this inventory, this cannot be a welcomed development. One has to wonder why this move was made?

Contesting Property Taxes

Rebecca Diamond is the co-host of The FOX Business Channel show "Happy Hour", which is held live each weekday at The Bulls and Bears Pub at the Waldorf Astoria in New York City. Part of the show is a segment called The Diamond District, and during the following segment Diamond interviews Dani Babb, author the of "The Accidental Landlord", and the discussion involves property taxes. Take a listen:



Most of this information is correct. Almost every appraisal we do these days finds the subject property over assessed. Our company, Accurate Property Values can help property owners with the entire process of contesting tax assessments. We have relationships with most county offices in Central Florida and an extensive history in participating in the appeals process.

Please feel welcome to visit our website or give us a call at 407-488-6458 to discuss your current position. Time is of the essence as these appeals must be finalized by early September. We have introductory offers beginning at just $49, which would be quite a bargain to know you are paying taxes based on accurate assessments or if you are able to reduce your assessed value, which over time could be a very significant savings.

Regression To The Mean

Lets follow the sales progression of a home in southeast Orlando and see what information we can derive from the marketplace.
In May of 1999, after 199 days on the market, this @2000 square foot home in the Southchase area of Orlando sold for $123,000. This 4 bedroom, 2 bath home, the subject of this case study, was built in 1996, features volume ceilings, interior laundry, a covered rear porch and is located on a corner lot.
Our subject property sold again in September of 2002 for $160,400 after only 17 days on the market. The sale price was approximately 8% above our projected path of appreciation.
In 2005, with the escalation of housing prices in full gear, our subject sold in June for consideration of $269,900, full asking price, after only 7 days on the market.

After some interior renovations and a couple of buckets of paint, our subject was re-listed in August of 2005 and sold after 49 days on the market for $317,500. Now that is impressive! This value is some 70% above the projected appreciation schedule, which is obviously quite risk sensitive and in my view would be cause for concern if I was a buyer.

In Central Florida, the typical annual appreciation level for single family residences in decent areas has been approximately 6.5% over the last decade and half or so. The following shows a 6.5% annual appreciation of our subject based off the 1999 sale price:

1999---$123,000
2000---$130,995
2001---$139,509
2002---$148,578
2003---$158,235
2004---$168,521
2005---$179,475
2006---$191,140
2007---$203,564
2008---$216,796
2009---$230,888

We note that the 2002 sale was outpacing the projected annual appreciation rate by approximately 8%, which is not alarming in a fast growing community such as Southchase.

Evaluations of market price in the housing market has many of the characteristics found in the stock market. Risk is measured by the distance from the moving average, and the first 2005 sale is at a level some 45% above the projected appreciation, which clearly would indicate a substantial level of risk. Prices could "correct" back to the projected appreciation level without violating the trend of the market.

The second sale in 2005, even with the improvements to the property, signals what technical analysis would define as a "blow off top", which is a sudden sharp rally, an explosion to the upside which occurs after a long advance. This event usually signals the total exhaustion of buyers who have used up all their buying power and leads to a sharp decline in values typically back to or slightly below the moving average levels. It is then followed by a prolonged bear market, which we are presently experiencing.

In November of 2008, I was asked to perform an appraisal assignment on this property. The indicated value came in at $215,000, which incidentally, is right on top of the indicated value the subject property should represent in 2008 following the projected path of appreciation.

Below is a chart of the median sales price of homes in data through December 2008 from The Orlando Regional Realtor Association, of which I am a member. The escalation of value above the average appreciation path beginning in 2004 is clearly evident, and that is a measurement of risk. The chart shows us how pricing has now regressed to a level that is on par or slightly below the projected path.

What does it mean? In a normal environment, the downside risk of purchasing a home today is at normal levels, and that any significant deterioration from here would be abnormal and unprecedented. The affordability factor is in the buyers favor, and with the movement by the Federal Reserve injecting capital into the system, even with the lagging indicator of job losses mounting, we should begin to see an improved market by mid 2009. What are your thoughts?

The End of Prosperity

I had a chance to visit with Wall Street Journal Editorial Board member and senior economics writer Stephen Moore at a local forum on Friday.

Moore, a frequent guest on CNBC's Kudlow & Company and The Glenn Beck Program, is the author, along with Dr. Arthur Laffer and Peter J. Tanous, of the new book The End of Prosperity: How Higher Taxes Will Doom The Economy If We Let It Happen.

Moore left no stone unturned in his economic commentary, complete with charts and graphs, detailing how a high tax and anti-growth environment will lead this country to unnecessary economic hardship. Unfortunately, this is the rhetoric put forth by President-elect Barack Obama. We can all only hope that the incoming administration, given the turmoil our economy is in, will at a minimum pause of some of the tax policies they campaigned on.

The conference was over before news of the selection of New York Federal Reserve President Tim Geithner as Treasury Secretary became public. Geithner is a free trade guy, with international experience who has been working closely with the FED in the recent rescue efforts that have taken place during the current economic cirsis. At the end of the day I think this is a good decision by The Obama transition team, one that could provide stability and perhaps curtail much of the uncertainty gripping the markets.

In his comments in Orlando, Moore indicated that he thought the Treasury Secretary would be the most important figure going forward for the next two years or so. Moore was back from the forum in time to join Larry Kudlow on CNBC Reports Kudlow & Company for a round table with Jared Bernstein, Robert Reich and Jimmy Pethokoukis on the markets, the potential implosion of Citigroup and the nomination of Geithner.

Home Equity Squeezed Tight

Alexis Glick of FOX Business interviews a few market players who discuss the issues surrounding the tightened environment of the day.

Banks horribly mismanaged their risks principally through the subprime lending mechanism. Now, while they repair their balance sheets, homeowners with credit previously extended to them are having these loans frozen or called.





In order for the economy to rebound, and don't think for one moment the residential real estate market is not principal in the recovery, the consumer will need bargaining power and lines of credit to work with. With the banks squeezing the consumers by raising credit card rates, freezing credit lines and tightening lending requirements, the consumer appears to be a deer in the headlights.

Banks mismanage risks and then pummel the consumer to help them heal. This extortionist tactic cannot be good news if you looking for a rebound in this consumer driven economy.