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Archive for January, 2010

[Three Cents Worth #138] Manhattan Market Syncs Up With the Hamptons

January 29, 2010 | 2:59 pm | | Charts |

It’s time to share my Three Cents Worth on Curbed, at the intersection of neighborhood and real estate.

Three Cents Worth: Manhattan Market Syncs Up With the Hamptons

Since the Hamptons saw a price correction earlier in this housing cycle than Manhattan’s eventual reckoning, I wanted to see how the two markets otherwise compared to each other. Conventional wisdom said that Wall Street has been driving a lot of the high-end demand out east, and many of those buyers often own a property in New York City, so I expected the two markets to show similar trends.

[Click to expand and read full post on Curbed]

Check out previous Three Cents Worth posts.

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Appraisers and Foreclosure Sales Bring Havoc to Housing Markets

January 29, 2010 | 12:30 am | | Articles |

I authored the following article for RealtyTrac which appeared on the cover of their November 2009 subscriber newsletter called Foreclosure News Report. It features a column for guest experts called “My Take.”

When Rick Sharga invited to write the article, he provided the previous issue which featured a great article by Karl Case of the Case Shiller Index and I was sold.

I hope you enjoy it.

Appraisers and Foreclosure Sales Bring Havoc to Housing Markets
By Jonathan Miller
President/CEO of Miller Samuel Inc.

In many ways, the quality of appraisals has fallen as precipitously as many US housing markets over the past year. Just as the need for reliable asset valuation for mortgage lending and disposition has become critical (fewer data points and more distressed assets) the appraisal profession seems less equipped to handle it and users of their services seem more disconnected than ever.

The appraisal watershed moment was May 1, 2009, when the controversial agreement between Fannie Mae and New York State Attorney General Andrew Cuomo, known as the Home Valuation Code of Conduct, became effective and the long neglected and misunderstood appraisal profession finally moved to the front burner. Adopted by federal housing agencies, HVCC, or lovingly referred to by the appraiserati as “Havoc” and has created just that.

During the 2003 to 2007 credit boom, a measure of the disconnect between risk and reward became evident by the proliferation of mortgage brokers in the residential lending process. Wholesale lending boomed over this period, becoming two thirds of the source of loan business for residential mortgage origination. Mortgage brokers were able to select the appraisers for the mortgages that they sent to banks.

Despite the fact that there are reputable mortgage brokers, this relationship is a fundamental flaw in the lending process since the mortgage broker is only paid when and if the loan closes. The same lack of separation existed and still exists between rating agencies and investment banks that aggressively sought out AAA ratings for their mortgage securitization products. Rating agencies acceded to their client’s wishes in the name of generating more revenue.

As evidence of the systemic defect, appraisers who were magically able to appraise a property high enough to make the deal work despite the market value of that locale, thrived in this environment. Lenders were in “don’t ask, don’t tell” mode and they could package and sell off those mortgages to investors who didn’t seem to care about the value of the mortgage collateral either. Banks closed their appraisal review departments nationwide which had served to buffer appraisers from the bank sales functions because appraisal departments were viewed as cost centers.

The residential appraisal profession evolved into an army of “form-fillers” and “deal-enablers” as the insular protection of appraisal professionals was removed. Appraisers were subjected to enormous direct and indirect pressure from bank loan officers and mortgage brokers for results. “No play, no pay” became the silent engine driving large volumes of business to the newly empowered valuation force. The modern residential appraiser became known as the “ten-percenter” because many appraisals reported values of ten percent more than the sales price or borrower’s estimated value. They did this to give the lender more flexibility and were rewarded with more business.

HVCC now prevents mortgage brokers from ordering appraisals for mortgages where the lender plans on selling them to Fannie Mae or Freddie Mac which is a decidedly positive move towards protecting the neutrality of the appraiser. Most benefits of removing the mortgage broker from the appraisal process are lost because HVCC has enabled an unregulated institution known as appraisal management companies to push large volumes of appraisals on those who bid the lowest and turn around the reports the quickest. Stories about of out of market appraisers doing 10-12 assignments in 24 hours are increasingly common. How much market analysis is physical possible with that sort of volume?

After severing relationships with local appraisers by closing in-house appraisal departments and becoming dependent on mortgage brokers for the appraisal, banks have turned to AMC’s for the majority of their appraisal order volume for mortgage lending.

Appraisal management companies are the middlemen in the process, collecting the same or higher fee for an appraisal assignment and finding appraisers who will work for wages as low as half the prevailing market rate who need to complete assignments in one-fifth the typical turnaround time. You can see how this leads to the reduction in reliability.

The appraisal profession therefore remains an important component in the systemic breakdown of the mortgage lending process and is part of the reason why we are seeing 300,000 foreclosures per month.

The National Association of Realtors and The National Association of Home Builders were among the first organizations to notice the growing problem of “low appraisals”. The dramatic deterioration in appraisal quality swung the valuation bias from high to low. The low valuation bias does not refer to declining housing market conditions. Despite mortgage lending being an important part of their business, many banks aren’t thrilled to provide mortgages in declining housing markets with rising unemployment and looming losses in commercial real estate, auto loans, credit cards and others. Low valuations have essentially been encouraged by rewarding those very appraisers with more assignments. Think of the low bias in valuation as informal risk management. The caliber and condition of the appraisal environment had deteriorated so rapidly to the point where it may now be slowing the recovery of the housing market.

One of the criticisms of appraisers today is that they are using comparable sales commonly referred to as “comps” that include foreclosure sales. Are these sales an arm’s length transaction between a fully informed buyer and seller is problematic at best. While this is a valid concern, the problem often pertains to the actual or perceived condition of the foreclosure sales and their respective marketing times.

Often foreclosure properties are inferior in condition to non-foreclosure properties because of the financial distress of the prior owner. The property was likely in disrepair leading up to foreclosure and may contain hidden defects. Banks are managing the properties that they hold but only as a minimum by keeping them from deteriorating in condition.

In many cases, foreclosure sales are marketed more quickly than competing sales. The lender is not interested in being a landlord and wants to recoup the mortgage amount as soon as possible. Often referred to as quicksale value, foreclosure listings can be priced to sell faster than normal marketing times, typically in 60 to 90 days.

The idea that foreclosure sales are priced lower than non-foreclosure properties is usually confused with the disparity in condition and marketing times and those reasons therefore are thought to invalidate them for use as comps by appraisers.

Foreclosure sales can be used as comps but the issue is really more about how those comps are adjusted for their differing amenities.

If two listings in the same neighborhood are essentially identical in physical characteristics like square footage, style, number of bedrooms, and one is a foreclosure property, then the foreclosure listing price will often set the market for that type of property. In many cases, the lower price that foreclosure sales establish are a function of difference in condition or the fact that the bank wishes to sell faster than market conditions will normally allow.

A foreclosure listing competes with non-foreclosure sales and can impact the values of surrounding homes. This becomes a powerful factor in influencing housing trends. If large portion of a neighborhood is comprised of recent closed foreclosure sales and active foreclosure listings, then guess what? That’s the market.

Throw in a form-filler mentality enabled by HVCC and differences such as condition, marketing time, market concentration and trends are often not considered in the appraisal, resulting in inaccurate valuations. As a market phenomenon, the lower caliber of appraisers has unfairly restricted the flow of sales activity, impeding the housing recovery nationwide.

In response to the HVCC backlash, the House Financial Services Committee added an amendment to the Consumer Financial Protection Agency Act HR 3126 on October 21st which among other things, wants all federal agencies to start accepting appraisals ordered through mortgage brokers in order to save the consumer money.

If this amendment is adopted by the US House of Representatives and US Senate and becomes law, its deja vu all over again. The Appraisal Institute, in their rightful obsession with getting rid of HVCC, has erred in viewing such an amendment as a victory for consumers. One of the reasons HVCC was established was in response to the problems created by the relationship between appraisers and mortgage brokers. Unfortunately, by solving one problem, it created other problems and returning to the ways of old is a giant step backwards.

We are in the midst of the greatest credit crunch since the Great Depression and yet few seem to understand the importance of neutral valuation of collateral so banks can make informed lending decisions. Appraisers need to be competent enough to make informed decisions about whether foreclosures sales are properly used comps. For the time being, many are not.

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[Trulia] Obama Housing Report Card and Industry Call

January 28, 2010 | 4:06 pm | |

The call covered the Harris Poll survey commissioned by Trulia to grade Obama’s performance as it relates to housing.

Here’s his report card:

[click to open report]

On Tuesday January 26th 2010, Trulia’s CEO Pete Flint will be hosting an industry call discussing how President Obama did in his first year in regards to turning around the housing crisis. Pete will be joined by real estate experts and pundits Jonathan Miller, President and CEO of Miller Samuel and Howard Glaser, Principal of The Glaser Group…

Here are the notes and more details about the call.

Some of the press coverage about the call.

[SOTU] In The Hamptons

January 28, 2010 | 3:33 pm | |

Since attaching my head to other people’s photos appears to be in vogue, here’s the latest. Gotta love Curbed Hamptons.

They are referencing our two market report releases covering the Hamptons & North Fork 4Q 2009 and 2000-2009.

[Summer In Winter] 4Q 2009 Hamptons/North Fork Market Overview Available For Download

January 28, 2010 | 11:21 am | | Reports |

[click to view report]

The 4Q 2009 Hamptons/North Fork Market Overview that I author for Prudential Douglas Elliman was released today.

Other reports we prepare can be found here.

Charts will be available later today.

An excerpt

…The median sales price of an East End residential property was $701,161 in the fourth quarter, 1.6% higher than $690,000 in the same period last year and 0.2% above $700,000 in the prior quarter. This is the first year-over-year increase in median sales price since the first quarter of 2008. Average sales price was $1,313,264 in the fourth quarter, down 11% from $1,474,771 in the same period last year and down 2% from $1,339,510 in the prior quarter. The disparity between the median sales price, which removes outliers, and average sales price was attributable to general decline in prices at the high end of the market after rising faster than the overall market in prior years…

Download 4Q 2009 Hamptons/North Fork Market Overview

[Better East End] 2000-2009 Hamptons/North Fork Report Available For Download

January 28, 2010 | 11:10 am | | Reports |

[click to open report]

The 2000-2009 Hamptons/North Fork Ten Year Market Report that I author for Prudential Douglas Elliman was released today.

Other reports we prepare can be found here.

Its an analysis of the past decade on the East End of Long Island and is considered a supplement to our quarterly report series.

Download 2000-2009 Hamptons/North Fork Ten Year Market Report

[A Better Finish] 4Q 2009 Long Island Market Overview Available For Download

January 28, 2010 | 10:36 am | | Reports |

[click to view report]

The 4Q 2009 Long Island Market Overview that I author for Prudential Douglas Elliman was released today.

Other reports we prepare can be found here.

Charts with the 4Q 2009 will be available online later today.

An excerpt

…There were more sales in the fourth quarter than in any quarter over the past two years as purchasers took advantage of the firsttime buyer federal tax credit program, increased affordability and low mortgage rates. There were 5,935 sales in the fourth quarter, 34.1% more than 4,427 sales in the same period a year ago and 5.9% more than 5,603 sales in the prior quarter. The current pace of sales has doubled from the low point in the first quarter of 2009, when there were 2,872 sales, but still remained 22% below the peak of 7,607 sales during the third quarter of 2004, the height of the housing boom. Listing inventory declined as a result of the increase in the number of sales. There were 19,450 listings, 6.2% below 20,730 listings in the prior year quarter and 12.3% below 22,170 listings in the prior quarter…

Download 4Q 2009 Long Island Market Overview

[S&P/Case Shiller] November 2009 Data Sends Mixed Messages

January 28, 2010 | 10:06 am |

[click to open report]

“While we continue to see broad improvement in home prices as measured by the annual rate, the latest data show a far more mixed picture when you look at other details.” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s.

Good news, bad news = mixed message

  • 10 months of improved readings in the annual statistics, beginning in early 2009
  • third consecutive month these statistics have registered single digit declines, after 20 consecutive months of double digit declines.

“While we continue to see broad improvement in home prices as measured by the annual rate, the latest data show a far more mixed picture when you look at other details.”

  • Four of the markets – Charlotte, Las Vegas, Seattle and Tampa – posted new low index levels as measured by the past four years.
  • Only five of the markets saw price increases in November versus October.

The report also shows that prices are equivalent to late 2003.

What I didn’t understand was the following:

We are in a seasonally weak period for home prices, so the seasonally- adjusted data are generally more positive, with 14 of the markets and both composites showing improved prices in November.

This sounds to me like the seasonal adjustments are skewing the data more positively than it should?

When I read the report, it seems like the message is no more mixed than it was in the prior 2 months. With rising foreclosures expected in 2010, perhaps the report commentary is banking on a more significant impact later this year but the data doesn’t yet show it.


4Q 2009 Philadelphia Housing Holds Steady, Sales Post Unusual Increase

January 26, 2010 | 12:01 am |

This quarterly market report is provided by Dr. Kevin Gillen, an economist and Research Fellow at the University of Pennsylvania’s Institute for Urban Research. He analyzes the Philadelphia real estate market using the city’s real estate database through Econsult, an economics consulting firm based in Philadelphia PA that provides statistical & econometric analysis in support of litigation as well as business and public policy decision-makers. His results are published in a research paper called Philadelphia House Price Indices each quarter as a public service to the Philadelphia real estate community. Here’s his methodology.

Kevin does a great job parsing out the market and it is a pleasure to share his results on Matrix …Jonathan Miller

Download the report and Kevin’s commentary.


The most recent home sales data indicate a solidifying of the local housing market’s condition after several years of both declining sales and prices.

After two years of falling prices, prices held steady for the third consecutive quarter in 2009 Q4. The typical Philadelphia home rose in value by 0.5% on a quality- and seasonally- adjusted basis this past fall, according to the latest analysis by Econsult economist Kevin Gillen. From the housing market’s peak in 2006 to the recent trough of last winter, the average Philadelphia home had fallen in value by a total of 10.5%. But with the market’s apparent stabilization in the latter part of 2009, the average Philadelphia home has recovered 3.5% of its lost value, thereby reducing its total loss to only 7% since the bursting of the national housing bubble several years ago.

[Trulia] Rating Obama on Housing On Eve of State of Union Address

January 25, 2010 | 10:42 pm | |

Trulia, the real estate search site, has organized, and has asked me to participate in, an industry call Tuesday hosted by CEO and co-founder Pete Flint and Howard Glaser of The Glaser Group to discuss how the Obama administration has handled the housing crisis one year in (run-on sentence alert).

This will precede the President’s State of the Union address on Wednesday.

It should be interesting (the industry call, that is). I’ll post the results of the survey on Matrix and other feedback as soon as I can.

Disclosure: I’m an original member of the Trulia industry advisory panel.

[NAR] Existing Home Sales Plunge…As Expected

January 25, 2010 | 10:11 pm | |

[click to expand]

Last month home sales spiked as first time home buyers rushed to take advantage of the tax credit before the November 30 expiration and no one was sure that the credit would be extended. As a result, the December sales reflect the sharpest decline in existing home sales in 40 years.

From the NAR press release for existing home sales:

After a rising surge from September through November, existing-home sales fell as expected in December after first-time buyers rushed to complete sales before the original November deadline for the tax credit.

fell 16.7 percent to a seasonally adjusted annual rate1 of 5.45 million units in December from 6.54 million in November, but remain 15.0 percent above the 4.74 million-unit level in December 2008.

NAR couched the bad news with a sprinkling of good news:

  • 5,156,000 existing-home sales in 2009, 4.9 percent higher than the 4,913,000 transactions recorded in 2008; the first annual sales gain since 2005.
  • National median existing-home price for all housing types was $178,300 in December, 1.5% higher than 2008

The worry here is not about the 16.7% decline – the concern is the removal of the tax credit as a stimulus for demand. I’m not advocating one way or the other – I am merely observing that housing does not yet stand on its own two feet so calling a bottom or a recovery is a mischaracterization.

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[The Housing Helix Podcast] Barry Ritholtz, Bailout Nation, Fusion IQ, The Big Picture Blog

January 25, 2010 | 9:50 pm | Podcasts |

Barry Ritholtz of Fusion IQ, the The Big Picture blog and author of the must-read Bailout Nation had previously sat down with me last June so I was long overdue in inviting him back.

He is a terrific speaker and is always guilty of providing nothing less than clear cut commentary on the economic world around us. Plus he likes it when I call him irreverent.

This time we talk strategic non-foreclosure, existing home sales, interest rates, going to zero and the dumbest smart people in the room.

Check out the podcast

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.

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