Information Misrepresentation

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."

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.

Lessons Not Learned

Unfortunately, the financial bill (FINREG) has passed. Crafted by two of the top members of the architectural team of the housing crisis, Rep. Barney Frank (D;MA) and Sen. Chris Dodd (D:CT), this bill be deal a serious blow to the consumer. In addition, it will add further negative pressure on the housing market long term.

FOX Business takes up the potential effects in the following interview:



The new bill, over 2000 pages with many of the particulars of the legislation yet to be firmed up, will simply be devastating to small business and consumers. Governmental regulation increases costs which limit the choices of the consumer.

The banks will not be free to lend as they see fit, in their own communities taking into account current local market conditions, but will be governed under the new regulatory framework of this bill. It certainly will make effort to secure credit by the consumer more costly and much more difficult to obtain.

While we had to pass it find out what in it, there have been some real distressing items uncovered, from regulations on insurance to affirmative action hiring quotas for Wall Street.

Among the more puzzling items, the bill does absolutely nothing to rein in Fannie Mae and Freddie Mac, the government sponsored entities which contributed greatly to the housing crisis. Imagine that! CNBC has more:



The bill, signed in a ceremony at the Ronald Reagan Building, is insulting as it is in direct opposition to the principles and economic beliefs Reagan championed.

It would be great for Americans to let the following sink in: Free Market Capitalism is the best path to prosperity!

A King In His Own Court

Andrew Cuomo, who is running for Governor of New York, thinks quite highly of himself. Curtis Sliwa goes on the offensive to call Cuomo out at a recent convention of Democratic leaders.



Need a refresher on the origins of the housing crisis?



Andrew Cuomo was Housing and Urban Development Secretary under President Bill Clinton and forced Fannie Mae and Freddie Mac to make loans to low income candidates who under normal criteria would fail to get loans. This practice directly led to the collapse of the housing market when values backed up, unemployment rose and those sub prime loan recipients failed to satisfy their obligations.

Cuomo was not done. In the aftermath of the crisis, he implemented the Home Valuation Code of Conduct, which has turned the appraisal market upside down, killing jobs and lowering the quality of appraisals under non regulated appraisal management companies. This law is a direct assault on free market capitalism.

Cuomo represents that government, under elected officials who "are much smarter than you are" implement regulatory action that business owners must adhere to, raising costs to all associated. These regulatory actions serve as a tax, which increases costs, limits choice and hampers economic activity.

Andrew Cuomo is a candidate who has caused excessive damage to our economic system through his efforts in affirmative action and has not been held accountable. I hope the voters in New York will do just that, hold Cuomo accountable and deny his bid to become Governor of New York.

Is Economic Life of HVCC Over?

The Home Valuation Code of Conduct, a brainchild of New York Attorney General Andrew Cuomo, whuch became law as a regulatory mechanism on the hiring and management of the appraisal process, could see the end of it's economic life. The HVCC, along with hundreds of other governmental regulatory laws enacted, should have never became law.

Shortly after it became law, I wrote and overview from the perspective of an appraiser and free market capitalism.

In October of 2009, Rep. Gary Miller, (R:CA), joined by Rep. Michele Bachmann (R:MN), Rep. Childers (D:MS) and Manzullo (R-IL), offered an amendment to sunset the HVCC.

Now, it appears Senator Casey (D:PA) will offer similar language to the Senate. This will be very welcome news to all industries associated with the housing market and free market capitalists everywhere.

Dagan McDowell of FOX Business News has more on the potential demise of HVCC. Take a listen:


One can only hope the HVCC is put behind us, but even if the government sunsets the law, one wonders if banks, many of whom are partially owned by the government, and government sponsored entities such as Fannie Mae and Freddie Mac, will still implement the standards of the code.

High Vacancy Rates Crushing Investors

With Blackrock and Tishman Speyer walking away from the humongous New York City residential apartment community Stuyvesant Town, is there a difference in the morality of a commercial enterprise handing back ownership to the lenders versus a normal homeowner. And interesting discussion on CNBC hosted by Erin Burnett:



The economic environment created by the housing crisis and exacerbated by the deplorable policies enacted and looming legislation by the Obama administration, have forced the unemployment rate to remain swollen and the prosepct for improvement in that regard to remain handicapped.

In fact, apartment vacancies are at a 30 year high and, with a over supply of available living opportunites inclusing a shadow inventory, relief in not in sight.

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?

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.