Lumbering Giant Wants [2] Help [x 4]

September 1, 2005 | 10:47 pm | |

There has been a heated debate between the US and Canada over the tariffs being assigned to softwood imports into the US. In 2002, the US implemented these tariffs, which are reportedly contrary to the NAFTA agreement. [Note: Sub.] A 3-person arbitration board ruled that the US must refund over $5B in tariffs collected from imported Canadian softwood. The US lost the appeal on the ruling but still has refused to refund tariffs already levied.

There has been a lot of controversy surrounding the softwood tariff debate. Canada exports more than 50% of the lumber they produce to the US and the US will need more lumber as a result of Hurricane Katrina and the on-going housing boom. Look for rising prices for construction supplies as a result.
[Casper Star Tribune]
[National Post]

The housing boom has placed a significant pressure on the availability of lumber for construction. Wood exports from Canada are a significant source of lumber for the US and a major export of Canada.

In light of Hurricane Katrina’s extensive damages to the gulf area housing stock of Lousiana, Mississippi and Alabama, demand for construction supplies are expected to increase significantly and at least one advocate for affordable housing wants the tariffs removed.

Lets hope these two allies and neighbors can resolve their differences and get this crises resolved soon.

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OFHEO Refinances Their Data

September 1, 2005 | 10:04 pm |

Largest U.S. House Price Increase In More Than 25 Years [Note: Reg.]; OFHEO House Price Index Shows Annual Rise of 13.4 Percent.

Download a full copy [Note: PDF]

Signficant Findings of the House Price Index (from their press release)
1. Nevada continues to have the highest appreciation of all states; house prices increased 28.1 percent over the past year and 5.5 percent for the quarter. However, for the first time since the fourth quarter of 2003, Las Vegas is not on the OFHEO list of the 20 fastest growing MSAs.
2. The second greatest annual price growth was in Arizona. Over the second quarter alone, Arizona house prices grew 9.7 percent – far surpassing every other state. Arizona’s annual growth rate rose from 20.4 percent in the first quarter of 2005 to 27.8 percent in the second quarter of this year.
3. Thirty of the 265 ranked Metropolitan Statistical Areas (MSAs) had four-quarter appreciation exceeding 25 percent.
4. For the first time, Naples-Marco Island, Florida topped the list of ranked MSAs with the highest appreciation. Bakersfield, California was second.
5. Florida, California, Nevada, and Arizona are no longer the only states represented in the top 20 MSA list. MSAs in Idaho and Utah have now entered the list.
6. Twenty-five states (including the District of Columbia) exhibited double-digit annual price growth and eight states had price increases exceeding 20 percent.
7. Four-quarter appreciation rates in Maryland and Virginia (along with Arizona and Florida) were at their highest levels over the 30-year history of the OFHEO HPI.

What does OFHEO do and where do these numbers come from?

  • From OFHEO’s web site: “OFHEO’s primary mission is ensuring the capital adequacy and financial safety and soundness of two government-sponsored enterprises (GSEs) — the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). “

Concerns of having OFHEO as the bedrock for national housing statistics is:

  • OFHEO was basically asleep at the helm before the outbreak of the recent Fannie Mae scandal, but eventually did what it needed to do when pressured by Congress.

  • OFHEO actually uses refinance mortgage recordings as part of the data set in this repeat sales index. If they exclude refinances (which are NOT sales transactions, by the way), the index is actually 10.99%, or 2.44% less than the results that include refinance transactions.

Question: What is the rationale for including refinance data?

Answer: I suspect it would drop the number of transactions in the data set significantly but with $30M+ total transactions, there should be plenty left over to analyze.

  • OFHEO only uses conventional mortgage information from Fannie Mae and Freddie Mac. The conventional mortgage limit is currently $359,650.

Question: How does a data set based on conventional loan limit data influence the results of the report?

Answer: The lack of non-conforming mortgage data (loans in excess of the conventional threshold) basically eliminates the upper end of the housing market.
This paints an incomplete picture of the overall housing market.

Don’t get me wrong, its certainly useful to have these stats generated by OFHEO, just don’t bet the farm on them.

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Out Of Commission

September 1, 2005 | 8:35 pm |

Despite unusual examples of higher brokerage commissions, as was raised in the recent New York Post Story: Climbing Commission [Note: Reg.], only a small number of brokers are making significant income during the current real estate boom.


Well, most sellers have the perception that since properties have generally doubled over the past five years, commissions should have followed suit, since the commission is a percentage of the sales price. This is the topic of an excellent article in called: Bubble-lusions – Why most real-estate agents aren’t getting rich.

One of the reasons that individual real estate brokers are not doing as well as everyone thinks, is based on the economics principle “zero-profit condition.”

In a business with free entry, new participants will keep entering until no money remains. And becoming a real-estate agent is almost free…With all these new agents swarming onto the scene, the price they charge may remain constant, but the number of houses each sells will not.

In other words, as more agents flood the market to get a piece of the pie, there is less of that pie to go around.

Disaster Relief Aid: Hurricane Katrina

September 1, 2005 | 5:58 pm |

This has turned out to be a larger disaster than anyone imagined. Here are some ideas on how you can help in the relief effort.

Relief Organizations

[American Red Cross through Apple iTunes]

I used Apple iTunes (100% goes to the Red Cross) but all are great organizations.

[American Red Cross]

[Salvation Army]

[North American Mission Board Disaster Relief Fund]



Disaster Relief Aid After Hurricane Katrina

September 1, 2005 | 5:19 pm |

This has turned out to be a larger disaster than anyone imagined. Here are some ideas on how you can help in the relief effort.

Relief Organizations

[American Red Cross through Apple iTunes]

I used Apple iTunes (100% goes to the Red Cross) but all are great organizations.

[American Red Cross]

[Salvation Army]

[North American Mission Board Disaster Relief Fund]


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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.


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.

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Narrow-Minded In London

August 31, 2005 | 10:33 pm |


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.


In Texas, Privacy Was Not A Pretty Picture

August 31, 2005 | 10:07 pm |

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.

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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.

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Talk Is Cheap. Supply Exceeds Demand.

August 30, 2005 | 10:04 pm |


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.


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. 😉

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The Numbers Are In: Advisors More Confident Than Consumers

August 29, 2005 | 8:18 pm |


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.


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