Matrix Blog

Archive for August, 2005

Earth to US: You Are Not Alone

August 31, 2005 | 11:14 pm |

[Seoul] raises property taxes to cool surging prices [Note: Reg.]

[Spanish] Housing loans up 26% in May amid ongoing boom

[South Africa] Property boom driving demand for materials

[UK] rate cuts could spark another housing boom

[New Zealand] Headed for Heartbreak?

[China] Concerns deepen over housing boom

[Iceland] Name Europe’s latest ‘tiger.’ Hint: look toward the Arctic Circle.

ideaworld

Is there a pattern here? It seems to me that there has been a lot of analysis on what the Fed will do to cool of the housing boom, but its apparent that many parts of the world are dealing with the same thing the US is at the same time. Australia and the UK just came out of their housing boom 2 years ago.

I would think that any solutions for a soft landing for the US real estate markets must come from internationally-orientated strategies.


Tags: ,


Narrow-Minded In London

August 31, 2005 | 10:33 pm |

9footTH

A 9’11″ wide house at its widest point and 5’5″ at its narrowest, is on the market in London for US$933,000.


Tags:


In Texas, Privacy Was Not A Pretty Picture

August 31, 2005 | 10:07 pm |
Texas Appraisal Districts

When a number of the 254 Texas tax appraisal districts began to post photos of private homes on their web sites, thats when the trouble began. [Note: Reg.] The practice was designed to help appraisers and better inform homeowners when protesting their taxes. The photos were taken from the public street and were not of the homes interiors. Some districts posted floorplans as well. Effective September 1, 2005, all such content is to be removed.

After much turmoil, the Texas Legislature passed, and the Governor signed, the appraisal photo bill:

SB 541 amends the Texas Tax Code to protect the confidentiality of photographs and floor plans of homes or property. These photographs and floor plans will remain available for the official use of the appraisal district, the state, the comptroller, taxing units and political subdivisions, but will be exempt from Open Records Requests from the public.

This is fascinating because this law showed how far the window on privacy could be pushed. Many of the largest properties in the survey were not revealing because they simply showed the front gate or the trees that blocked the property. Advocates for the bill were concerned that floor plans and photos made it easier for stalkers and burglers.

New York City had done the same thing in the 1980′s but the photos were not in the public domain because the internet was not readily accessible to the public in its present form.


Tags: , ,


Behind The Curve: The Appraisal Waiver

August 30, 2005 | 11:23 pm |

In many markets, a financing contingency is simply not accepted by sellers due to the limited supply of inventory [Arizona Republic].

In other markets, there is a modification of a contingency called an “appraisal contingency waiver,” “To get a house, buyers now often have to waive the appraisal contingency on their home contract. That means the buyer agrees to the sales price even if the appraisal comes up short. They no longer have the low appraisal as a way to back out of the contract without losing earnest money.”

It seems to me that a buyer could convince the lender to decline their loan for weak credit so they don’t lose their deposit or earnest money.

This reporter in this article also says something that bothered me: Appraisers take months to catch up to the market, waiting for closed sales from three to six months prior.

If that is the status quo, then those appraisers are not estimating market value, but instead, are just form filling. How can an appraiser not consider current contracts to adjust the dated closed sales to market value? Relying soley on closed sales is simply an incomplete analysis. For this type of contingency to be common place, then this appraisal practice must be widespread in this market.

On the flip side, appraisers are under tremendous pressure to “make the number” from buyers, sellers, brokers, mortgage brokers and lenders. So I am surprised that so many appraisers have no problem killing a sale with all the pressures they face. I suppose thats a good sign.


Tags: , ,


Talk Is Cheap. Supply Exceeds Demand.

August 30, 2005 | 10:04 pm |

trendoverhead

We are going through a challenging economic climate right now. Ever notice how many “economists” are out there?

What is an economist? (Besides someone who studies the economy).

According to the U.S. Department of Labor Bureau of Labor Statistics (BLS) Occupational Outlook Handbook economists:

“study how society distributes scarce resources such as land, labor, raw materials, and machinery to produce goods and services. They conduct research, collect and analyze data, monitor economic trends, and develop forecasts. They research issues such as energy costs, inflation, interest rates, exchange rates, business cycles, taxes, or employment levels.”

An economist friend once told me that “economists are paid to worry.” There’s that old joke: “if you put a group of economists in the same room, not only can they not agree on where the economy is going, they can’t agree on where it came from.” and of course, “economics is the only field in which two people can share a Nobel Prize for saying opposing things.” For such a serious profession, there sure are a lot of economist joke sites on the web.

12c

But I digress…

The BLS definition is all well and good for government and academia, but what about trade groups and corporations that have economists and chief economists? Where there are profits and influence, there may be a credibility problem. Many are using the title “Chief Economist” in the real estate economy these days, including appraisers, brokers, analysts and others.

Wall Street has been using this title for years. I never really thought about the potential conflicts until now, since I see economists as a profession of independent critical analysis, but perhaps thats just the idealist in me.

Although, I’m concerned, I’m not angry. I’ll leave that to one of my favorite blogs, The Angry Economist.



Flipping In Secret

August 29, 2005 | 9:36 pm |

A survey of recent condo sales in Miami showed that nearly half the condo owners were LLC’s. It is believed that these are mainly speculators. Corporations and foreigners often create an LLC when purchasing real estate to protect themselves from liability. Speculative flipping appears to be on the rise in metropolitan areas around the country.

If you have been appraising for a while, remember the painful experience the FDIC’s bailouts starting with Vernon Savings and Loan in Vernon, Texas in the late 1980′s? This was often claimed as the straw that broke the camel’s (FDIC’s) back and a flood of bailouts soon followed. One of the reasons for the collapse was the high volume of property flipping, with the same property often transferring several times in the same day. While the stories are different today, flipping is still occuring.

Buyers and sellers are increasingly withholding information that as appraisers, we are bound to verify. According to USPAP, we are supposed to report all prior transfers within the past three years. Our licensing requires us to disclose what we were unable to verify that is needed for the valuation.

It is now even more important than ever to get a copy of the contract and review it. We are stumbling into undisclosed flips more than in prior years. Flipping appears to be one of the reasons Fannie Mae recently redesigned their appraisal forms.

How do we determine if there is a flip? Usually, an experienced appraiser will notice that the sales price, even considering an optimistic appreciation assumption, doesn’t make sense and match the names in the contract with the owner on record. For the appraisal firms that do high volume with trainees, I hope you have good E & O insurance. ;-)

Tags: , ,


The Numbers Are In: Advisors More Confident Than Consumers

August 29, 2005 | 8:18 pm |

numbersarein

For the fourth month in a row, the Advisors Confidence Index (ACI) showed an improved outlook. The ACI provides a measurement of the US economy and the stock markets. The Advisor Confidence Index is based on a survey of 150 independent registered investment advisors.

The quotes from the advisors provide interesting insight. They touched on the main factors that will provide the most impact on the direction of the markets and the economy: Oil & Housing. The next 6-months appear to look better than the following 6-months.

However, this conflicts with consumers perceptions of the state of the economy. The University of Michigan Consumer Confidence Index fell sharply in August, further than analysts projections, the second drop in the past two months.

Apparently investor advisors are more optomistic about the future than consumers are.


Tags:


Katrina & Oil Prices: The Perfect Storm

August 29, 2005 | 7:23 pm |

katrina

Late last week, as the hurricane threat to the Gulf of Mexico increased, the oil futures market became concerned that production would be affected. Futures traders bid up the price of oil and gasoline due to the perceived future constraints on supply and now oil seems headed for $70 per barrel. The futures market seems hyper-sensitive to any threat to oil production these days.

refinery2



How can this impact housing prices?

Simple. Higher Mortgage Rates.

As this and other inflationary factors gain momentum (if they do), bond investors would likely become concerned about the inflation risk in the long term, which eventually translates into higher borrowing costs. Higher borrowing costs generally translate into lower home prices.

Then again, thats just one theory of many. Lets ride the storm out.


Tags:


Headline: Real Estate Sells Newspapers

August 29, 2005 | 6:36 pm | wsjlogo |

netnesting

The interest in real estate is keeping newspapers seeing black ink. [Note: Paid Sub.] Besides homeowners who have seen the value of their properties rise over the past several years, it is newspapers, specifically classified advertising, that have enjoyed the rise but the recovery has been slow.

newspaperstand

Real estate comprises 1/4 of all classified advertising. Gains in real estate advertising has possibly masked increased competition from web site listings. Correspondingly, newspaper stocks have not done well in 2005.

Could the intensity of bubble talk be more influenced by the thirst for dollars than we give it credit for? Could the media make the bubble a self-fulfilling prophecy?


Tags:


PMI: Going Over Your Limit

August 28, 2005 | 1:00 am |

See previous post on Matrix: PMI Gets You In The House: Now Get Rid Of It.

The Homebuyers Protection Act was passed by Congress in 1998 requiring lenders to notify homeowners when the equity in their home reached a level where PMI was no longer required.

Here is the testimony of Richard J. Roll, Founder and President, American Homeowners Association (AHA) in front of the United States Senate Committee on Banking, Housing and Urban Affairs on February 25, 1997 on PMI. He was speaking about the abuse of PMI overcharges.

“Your home falls under this act if you purchased, constructed, or refinanced your single-family home after July 29, 1999, and your loan is not a government-insured FHA or VA loan. If you purchased your home before July 29, 1999, your lender is not required to cancel your PMI when you reach 20 or 22% equity, but many lenders will do so if you ask.

Here is an article on the costs associated with PMI insurance to homeowners.

There is significant incentive for a homeowner to get PMI removed from their loan payment. In order to do this you need the services of a certified real estate appraiser to provide a value estimate. If the home has appreciated enough to where the equity is at least 20% of the overall value, then the odds are relatively good that you can get the lender to remove the PMI.


Tags: ,