New Appraisal Rules Blamed for Killing Some Sales
Real estate agents and mortgage brokers say home appraisals are coming in lower than agreed-on prices and disrupting sales because of new appraisal rules put into effect by Fannie Mae and Freddie Mac on May 1. At the heart of the new code is a rule prohibiting mortgage brokers from ordering an appraisal directly from the appraiser. They now have to go through the lender, and increasingly lenders are using third-party appraisal management companies to parcel the work out to individual appraisers. The idea is to insulate the appraiser from pressure to inflate home values, but critics say the appraisal management companies have boosted fees to consumers by about 40% while drastically cutting the amount paid to the appraisers doing the actual work, and pocketing the difference. Inexperienced appraisers, often from out of town but willing to work cheaply, are rushing through jobs and making costly mistakes, they say. Donna Evers, president of Evers & Co. in Washington, D.C., said: “Yes, we are having trouble with appraisals….Lenders are pulling back too much (like the pendulum swinging too far in the opposite direction) and the appraisers are under-appraising like mad.” Sue Goodhart, a McEnearney agent in Alexandria, Va., said, “I think it will be less of an issue as we get into the next few months” when there will be higher recent sales prices to back up appraisals. (www.washingtonpost.com)
Washington Post (6/27/09); Elizabeth Razzi, with Emma L. Carew
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Home-Price Recovery May Be Undermined by Appraisals
Flawed appraisals are derailing real estate sales and depressing values across the U.S., the National Association of Realtors® said as it reported that existing home prices declined 17% in May from a year earlier. “It’s pointing to thousands of delayed or canceled transactions,” Lawrence Yun, the association’s chief economist, said in an interview. “We’ve had a massive inundation from members saying this is a big problem.” Low appraisals have become a focus of the California Office of Real Estate Appraisers, which oversees licensed appraisers in the state. Investigations by the Sacramento-based agency rose 36% to 418 at the end of May from the same period last year, said Bob Clark, director of the office. The probes are looking into allegations including flawed valuations and use of comparable sales too far from the subject property, he said. California real estate investor Bruce Norris renovated a three-bedroom home in the Riverside-San Bernardino, Calif., metropolitan area in January and found two buyers willing to pay $165,000. An appraiser put the value 15% lower. The prospective purchasers walked away and now he’s renting the house instead. “Low appraisals that lead to a sale reduce comparable prices in a neighborhood and make it impossible for another group of people to refinance,” Norris said. “Just as the lack of careful regulation led to inflated prices, the return to regulation is reinforcing the downturn,” said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia. “It’s making the cycle worse.” (www.bloomberg.com)
Bloomberg.com (6/24/09); Dan Levy
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Economy Can Strengthen Only When Housing Prices Do
The U.S. economy won’t regain its strength until the price of housing stops falling, and that day hasn’t yet arrived. “The crisis cannot end fully until home prices in the U.S. are at least stabilizing,” says Alan Greenspan, who continues to dissect housing data with as much interest as he did when he was Federal Reserve chairman. Last August, Greenspan was predicting that home prices would “likely start to stabilize or touch bottom sometime in the first half of 2009.” He now says that day will arrive about three to six months later than he anticipated. For one thing, fewer new households were formed than he expected, which meant less demand for housing. Lawrence Meyer, the seasoned economic forecaster and former Fed governor, says one of the most important differences between “people who are bearish on the economic outlook and those who are less bearish” is their prediction about home prices. In the less-bearish camp, he sees a slowdown in the pace of home-price declines and expects the U.S. economy to be growing at better than a 2% pace by the fourth quarter, faster than many other forecasters. (www.wsj.com)
Wall Street Journal (6/24/09); David Wessel
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Lumber Market Need Not Fear Inflation Talk
Fears that a housing recovery and support for lumber markets could be cut short by Federal Reserve belt-tightening may be overblown, or at least premature. Some analysts and economists who advise lumber market investors contend that the federal packages designed to stimulate the economy could backfire, causing so much inflation that the Fed would have to raise interest rates. Such a move could curb the housing market and delay a lasting recovery in the lumber industry, they said. July lumber futures prices recently moved higher, bounding off near-record lows a month ago and moving to 6-1/2 month highs. Traders and market analysts, however, said it was fueled by short covering as continued losses force more and more cash-strapped mills to close. A lasting recovery in lumber markets would need a stronger demand base from a growing housing market, analysts said. Fortunately for the lumber industry, the feared scenario of rising rates could be a long way off — if it happens at all. “Anyone who says that doesn’t know what they’re talking about,” said NAHB economist Robert Denk. The key is unemployment, Denk said. Currently, the rate is above 9%, and there is anxiety of it moving above 10%. As long as this is going on, there are no inflation fears, he said. The concern for now actually is deflation as illustrated by a weak consumer price index. (www.djnewswires.com)
Dow Jones Newswires (6/23/09); Lester Aldrich
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For Sale, Still: Grand Homes in Gracious Neighborhoods
While entry-level homes are getting snapped up by bargain hunters across the Washington, D.C. region, pricey ones are languishing. This excess supply is a setback for some pockets of the area where single-family homes listed for $1 million or more make up a sizable chunk of the offerings — about 85% in Cleveland Park, 73% in Great Falls and 55% in Potomac, according to research firm Delta Associates. Even in the best of times, high-end homes take longer to sell because there’s thinner demand for them; this down market has exacerbated matters. That’s because pricey homes are the province of move-up buyers, many of whom have watched their home values decline, their financing options shrink and their net worths erode as the economy soured. For trade-up buyers, the $1 million-plus homes that were within reach a few years ago are no longer an option. In the Washington area, nearly 16% of single-family homes listed for $1 million or more were under contract recently, compared with 44% of homes listed for less than $1 million, according to Delta Associates. Financial issues are also in play. Real estate agents say that lenders are imposing stringent requirements even on credit-worthy borrowers looking to buy high-end homes. Locally, mortgages exceeding $729,750, or “jumbos,” carry higher interest rates than smaller loans and require heftier downpayments — typically 30%. Once the loan amount gets past $1.5 million, the downpayment requirements can go up to 40% or more. “They may also need eight to 12 months worth of mortgage payments in reserve to qualify for the best rate,” said Steve Calem, president of Capital Funding Group, a mortgage consulting and advisory firm. “It’s a market for cash buyers right now, and that’s really impacted the sale of bigger houses.” (www.washingtonpost.com)
Washington Post (6/27/09); Dina ElBoghdady
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Living Large in Downsized Housing
The generation that vowed to never grow old has begun to influence the housing market to fit its active lifestyle. Throughout the nation, and in Albany, N.Y.’s Capital Region, housing developments catering to those aged 55 and older are springing up. They are designed to satisfy the demands of a mature generation that has grown tired of mowing lawns and clearing snow, and now wants to enjoy freedom from home chores as they downsize. Most boomers choose to “age in place,” according to a recent report on the 55+ market by NAHB and the MetLife Mature Market Institute, but more than 1.2 million households are moving to age-restricted communities. By next year, boomers will represent a quarter of the U.S. population — “a group that will greatly impact the choices available in the housing market,” according to the study. Jeff Thomas, the developer of Brandlee Meadows, said he got the idea for that project seven to eight years ago while renovating a Victorian building. People called looking to downsize and wanted to know if he had seniors in mind for the renovated space. He didn’t because it had narrow hallways and a lot of stairs. Around the same time, he got a call from a church group in the Altamont, N.Y. area asking about a development for active seniors. “They got me interested,” Thomas said. He held focus groups and eventually “agreed to design something for them.” The complex, which opened last summer, has 72 units in nine buildings and amenities that include community gardens. Units are priced from $209,900. “It’s an empty-nester’s dream,” said Thomas, who has been in the construction business for 25 years. “They don’t do anything but worry about what they’re going to wear to the pool that day or the clubhouse.” (www.timesunion.com)
Albany Times Union (6/28/09); Carol DeMare
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