The National Association of Home Builders (NAHB) reported this week one out of every three of its builder members has lost a sale during the last six months because of home values reported by appraisers.
NAHB Chairman Bob Nielson said, "The inappropriate use of distressed and foreclosed sales as comparables in determining new home values is needlessly driving down home prices, killing home sales, causing more workers to lose their jobs and delaying a housing and economic recovery."
The NAHB did not stop there, further hammering appraisers with the following:
* According the Association, appraisers are using "faulty" practices by utilizing distressed homes as potential comparable sales against new homes. Mr Nielson said in a statement that "This is not only unfair and unreasonable, but it perpetuates the cycle of declining home values, drives more home owners underwater, harms local economic activity and acts as an obstacle to the recovery of the housing market."
* Mr Nielson notes that in many cases, new home appraisals are coming in below the cost of construction, because of flawed appraisals for utilizing existing and potentially distressed homes.
* Per the NAHB, These appraisal practices are a major contributing factor to the current acquisition, development and construction (AD&C) lending crisis that has choked off credit for home builders and threatens to prolong the current housing downturn. Falling appraised values for land and subdivisions under development have led some financial institutions to stop lending to developers and builders, to demand additional equity and even to call performing loans.
* The NAHB has been having summits, with leaders throughout the housing industry in an effort to find solutions that will allow appraisers to develop realistic valuations based on sales that are truly comparable.
Mr Nielson and the NAHB concludes that, you guessed it, “Major reforms in appraisal practices and oversight are needed to ensure that appraisals accurately reflect true market values and don’t contribute to price volatility or harm aspiring home owners and move-up buyers.”
One thing I know from the real estate world: It is always the appraisers fault. NOT! What we do have from the NAHB is information misrepresentation.
This must have been some series of summits. A bunch of bureaucrats gathered together to central plan the housing recovery, culminating in the one thing we need less, not more, of; additional regulations.
If additional regulations were the answer, the sweeping regulatory action spearheaded by former HUD Secretary and Architect of Ruin Andrew Cuomo, The Home Valuation Code of Conduct (HVCC), would have done the trick. Instead, it has wrecked the appraisal industry, leaving unregulated Appraisal Management Companies to coordinate, and in many cases dictate, appraisal performance.
Since distressed properties make up approximately 65% of the market here in Florida, it would be highly inappropriate to fail to consider these as potential comparable sales, provided the gross living area, age, amenities, and, of course, condition, were reasonably similar.
By applying political pressure to "develop realistic valuations," made as instructed will become a reality and as a result, valuations will be lacking in adequate support and accurate value.
Appraisal practices, as governed by the Uniform Standards of Appraisal Practice (USPAP), provide a framework for appraisers nationwide to adhere to in an effort to provide consistent and accurate valuation through the three approaches to value. These voluminous guidelines are a contributing factor to providing the industry with appraisal reports arriving at well supported value indications , not further deteriorating the housing crisis as the NAHB says.
Conspicuously absent from the many factors cited by the NAHB for the continued downward pressure on the housing market are the actions of the Obama administration. It is well documented that the origins of the collapse centered around the governments efforts to provide housing to buyers the marketplace weeded out. These potential buyers were not weeded out due to race, as ACORN would have you believe, but due to the higher risk associated with their ability to repay the loan. Before political correctness ran amok, his used to be referred to as sound business practice.
Among those applying pressure to the banks in the form of threatening race related boycotts was a young attorney for ACORN, Barack Obama.
While George Bush made failed attempts at forcing Congress to rein in the Government Sponsored Entities known as Fannie Mae and Freddie Mac, under House Finance Chairman Barney Frank, the Congress looked the other way.
Meanwhile, instead of letting the market cleanse itself, the administration has invented program after program to reward bad behavior and prop up the values of housing, which has only prolonged the pain and the problem. Government, who cannot be trusted, should leave the housing marketplace and let the free market establish a base for prices. In fact, we now learn the housing numbers have astonishingly been inflated.
Housing is not the only place numbers are inflated. Government spending, regulation and taxation is what is crushing the job market, with unemployment actually around 12% rather than the reported 8.6%, and for buyers to feel comfortable making large purchases in the form of housing, the job market needs to be at worst steady. Under this administration, there is no job creation, debt is expanding exponentially and Americans are in fear for the future.
Until jobs can be created in large numbers and the government diminishes involvement in what should be private sector activity, continued negative pressure on the housing market and America will remain.
As Ronald Reagan accurately said, "Government is not the solution to the problem, government is the problem."
Wednesday, December 14, 2011
Tuesday, March 29, 2011
Bottom Fishing
Last week, new home sales shockingly fell to a historic low as new and existing home prices continued to fall. While pundits across the fruited plain, including the "academics" at 1600 Pennsylvania Avenue, were shocked, it was unfortunately what we expected.
Efforts to fix the problem have been temporary band-aids which have had little or no effect on shifting the curve. CNBC's Larry Kudlow, joined by outstanding colleague Diana Olick, engage Brian Wesbury, economist at First Trust Advisors and A. Gary Shilling, who was spot on predicting the downfall years ago. Take listen:
Certainly, there are two schools of thought represented in this discussion, and I know who is correct. A. Gary Shilling. Wesbury thinks housing is bad, but not central to the grand economy, representing only 2% of GDP. While true, there is more to the story, commonly referred to economics as the ripple effect. Our economy is consumer driven, and those hurt in housing have suffered impaired credit, restricting the ability to purchase big ticket items. In addition, disposable income has taken a crushing blow, leading to downturns in household expenditures, including retail and small luxury items.
Just like two years ago, rising gasoline prices, which is essentially a tax, will add to the problem. Should the price of oil remain high, any potential recovery, both in housing and in the overall economy, will be dashed.
The absorption rate for housing is abysmal and new home construction barely has a heartbeat. Inventories are sky high, and many evicted from their homes are shacking up with family and friends, creating a negative impact on the rental market.
Quantity demand is handcuffed due to the aforementioned problems. Homeowners in negative equity, or those owing more on their home than it is worth, is understated. Add in governmental regulatory intervention, which is prohibiting the market from cleansing itself, and there is no port in the storm. Statistical measurements indicate we are just over 25% through the foreclosure process.
Unfortunately, the problem extends far outside real estate. The unemployment rate is significantly higher than reported in the media, due to those no longer actively seeking employment. Until we see the job market turn around, consumer confidence, purchasing power and credit worthiness will remain a stiff headwind into both housing and overall economic recovery.
Forget the arguement about a double dip recession, it is already in progress. Retail dining numbers have recently turned negative, as has the home price index as seen in the chart below.
CHART: BLYTIC.COM
In the housing market, government needs to get out of the way, allow the market to wring out the bad players and find a bottom to build a base off of. Of course, the answer is free market capitalism and not government intervention and influence in the marketplace.
Efforts to fix the problem have been temporary band-aids which have had little or no effect on shifting the curve. CNBC's Larry Kudlow, joined by outstanding colleague Diana Olick, engage Brian Wesbury, economist at First Trust Advisors and A. Gary Shilling, who was spot on predicting the downfall years ago. Take listen:
Certainly, there are two schools of thought represented in this discussion, and I know who is correct. A. Gary Shilling. Wesbury thinks housing is bad, but not central to the grand economy, representing only 2% of GDP. While true, there is more to the story, commonly referred to economics as the ripple effect. Our economy is consumer driven, and those hurt in housing have suffered impaired credit, restricting the ability to purchase big ticket items. In addition, disposable income has taken a crushing blow, leading to downturns in household expenditures, including retail and small luxury items.
Just like two years ago, rising gasoline prices, which is essentially a tax, will add to the problem. Should the price of oil remain high, any potential recovery, both in housing and in the overall economy, will be dashed.
The absorption rate for housing is abysmal and new home construction barely has a heartbeat. Inventories are sky high, and many evicted from their homes are shacking up with family and friends, creating a negative impact on the rental market.
Quantity demand is handcuffed due to the aforementioned problems. Homeowners in negative equity, or those owing more on their home than it is worth, is understated. Add in governmental regulatory intervention, which is prohibiting the market from cleansing itself, and there is no port in the storm. Statistical measurements indicate we are just over 25% through the foreclosure process.
Unfortunately, the problem extends far outside real estate. The unemployment rate is significantly higher than reported in the media, due to those no longer actively seeking employment. Until we see the job market turn around, consumer confidence, purchasing power and credit worthiness will remain a stiff headwind into both housing and overall economic recovery.
Forget the arguement about a double dip recession, it is already in progress. Retail dining numbers have recently turned negative, as has the home price index as seen in the chart below.
CHART: BLYTIC.COM In the housing market, government needs to get out of the way, allow the market to wring out the bad players and find a bottom to build a base off of. Of course, the answer is free market capitalism and not government intervention and influence in the marketplace.
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