So Many Questions Edition: How Is Housing? + Is There An Appraiser Shortage?

August 26, 2016

Admittedly I am not a huge New York Mets fan but I am a fan of their new stadium known as Citi Field – the last Mets game I attended at the old Shea stadium smelled like urine and stale tobacco.

When Citigroup was bailed out by the federal government in 2008, I dubbed their new stadium, “U.S. Treasury Field” but millions in naming rights were simply too powerful for my blog get the name into the zeigeist. Lets hope the new replacement for the Chicago White Sox’s U.S. Cellular Field, to now be known as “Guaranteed Rate Field,” won’t present problems for them in the future. It often does. Go Cubs!

There are so many questions to ponder this week as the title of this Housing Note suggests but I’ll get to that shortly. First, I need to spend a little time soaking up the headline of this Wall Street Journal article after spilling my iced coffee. Sigh.

Divorces, Like Housing Markets, Have Seasons

My appraisal firm does a lot of legal support appraisals and consulting, especially in matrimonial matters. I have no first hand personal experience with the topic because of my 30+ year marriage to Cheryl (phew). The lion’s share of our divorce appraisal work (the largest marital asset is often the home) tends to be as the neutral expert, agreed to and hired by both parties. I have noticed over the years that inquiries tend to be at their highest shortly after the new year and towards the end of the summer. As if the holidays or vacations brought some sort of reflection and a decision.

The trend kinda looks like a silhouette of Batman.

DivorceFilingsChart

As it turns out, thats a fairly reasonable way to view the pattern. According to a University of Washington research study: Is divorce seasonal? UW research shows biannual spike in divorce filings, there are seasons in divorce actions and I assume that has impact on the housing market.

Go for the McMuffins because McMansions Are Not A Good Investment

There was a fun Bloomberg article about the the symbol of the prior decade’s boom and bust cycle housing style of choice, the McMansion. As it turns out, they haven’t kept pace with the price growth of the overall market. The article was inspired by a pretty cool blog called Worst of McMansions.

mcmansionpremiums

But I digress…

Question 1: How is the housing market right now?

There seemed to be two themes to the housing market this week. In fact there was a lot of seminal pieces on the state of the market this week. I assume that the dog days of summer tends to tease out evergreen type writing since not much other economic news is happening. The primary theme concerned housing metrics as looking “ok.” New home sales are up and existing home sales are down. Plus there is the Brexit-influenced low mortgage rate thing. The second angle was a deeper dive into the mortgage lending system. I’ve grouped the housing market discussion into two categories (sorry for my lack of creativity on the subsection titles but it is the dog days of summer):

Good

– Still a Lot of Negativity on Housing [Ritholtz/Bloombergview] – My friend Barry provides the advantages or owning and renting, making the observation that homeownership hasn’t found a bottom and wonders if there is a cultural shift going on. I see this as a pure financial reality that is predicated on better economic conditions for Millennials. Lets get them out of our basements.

HObbritholtz

– The Housing Market Is Finally Starting to Look Healthy [Upshot/NY Times] – Neil Irwin writes a great piece on why the housing market looks rosy right now and we may be creating pent-up demand for a future rise in activity. He writes: “The question now is how far this housing expansion has to run, given the pent-up demand. Residential investment is currently 3.8 percent of G.D.P., compared with a 4.6 percent average since 1947. That implies there is further room for gains, even assuming that there is no repeat of the bubble experience from the last decade. It’s a rosy picture — and there’s reason to think it could last.”

nytnewhomesalesIrwin

Bad

– How a liquidity crisis could derail the U.S. mortgage market [CNBC] – KBRA senior managing director Christopher Whalen writes an interesting piece about the lack of liquidity of lenders and rising regulations could snuff out mortgage lending which hurts the volume currently enjoyed in the housing market. This is something I have spoken to often when it comes to the distortions in the housing market since the financial crisis. One of the issue is the low spreads between the rates banks borrow at to when they lend out. The narrower the spread, the lower the margin of error and the higher the aversion to risk. Housing doesn’t truly normalize until credit conditions do.

krollchartfedfundstreas

– Millennials aren’t buying homes. Good for them. [Washington Post] “Today about a third of 18-to-34-year-olds live with their parents. And for the first time since at least 1880…Recent survey data show that young people very much still aspire to buy a home, and moreover expect to do so one day. Among people ages 25 to 34 who rent, 93 percent say they are likely to buy a home someday, according to Fannie Mae’s National Housing Survey.”

– Nightmare on Main Street [The Economist] The authors are concerned about the U.S. mortgage market which is not safe despite the fact that banks have $1.2 trillion in capital. From the optics of the appraisal industry and proliferation of appraisal management companies (AMCs) since the financial crisis, I am wondering how reliable the calculation of that buffer actually is. They’re concern is that fewer banks are in the mortgage business and there is too much exposure to the bond market. The message her is that the mortgage market is an accident waiting to happen.

Question 2: Is There An Appraiser Shortage?

Nope (sorry, just going for drama here). Check out the Appraiserville section below for lots of discussion about appraisal management companies, the entities (AMCs) that are perpetuating this rumor for their own survival.

Appraiserville

Rob Chrisman’s column in Mortgage News Daily provided his own stream of consciousness within the middle (in bold) of quoting and paraphrasing how the current NAR president sees the appraisal industry:

The president of the National Association of Realtors (NAR) Tom Salone discussed appraisals recently. (Forget the fact that an appraiser can “only” do 2-3 a day, they don’t want to work 7 days a week, they seem to receive about 10 requests a day, few want to train their future competitor who will eventually undercut their price, and all are usually pressured by real estate agents to deliver on price.) Mr. Salome stated, “…in addition to affordability concerns, an issue seen earlier in the housing recovery may be reemerging. Realtors are indicating that appraisal complications are appearing more frequently as the reason why some home sales settlements are being delayed…

“Appraisal-related contract issues have notably risen over the past year, and were the root cause of over a quarter of contract delays in the past three months…This is likely a combination of sharply growing home prices in some areas, the uptick in home sales this year, and the strong refinance market overworking the already reduced number of practicing appraisers. Realtors are carefully monitoring this trend…”

The NAR president demonstrated what is a common lack of understanding on the state of the appraisal industry right now, despite that the problem is clearly impacting his members. The appraisal industry needs to convey to NAR what is actually going on. There is no shortage of appraisers. There is a shortage of appraisers willing to work for half the market rate. Forget the Appraisal Institute in this regard, they are mired in their own internal politics and have long flirted with being pro-AMC.

Remember, when you (AMC) take nearly half of someone’s income overnight, it changes the quality of new applicants entering the appraisal profession. This would be true with any profession. The experienced appraisers are penalized because they were properly trained and know better than to take shortcuts. Experienced appraisers don’t see their profession as one of a form-filler.

To remind everyone how AMCs have decimated the quality of bank appraisers, I have gone retro and linked to a couple of blog posts I’ve written on the topic in the past that were widely shared.

– Appraising for AMCs Can Be Like Delivering Pizza [Matrix/Miller Samuel] – Bad Actors: AMC Appraisal Perspective Through Rhetorical Misdirection [Matrix/Miller Samuel]

Scope Creep

And its not just taking a large slice of the appraiser’s fee, appraisers lose a huge swath of productivity by being asked insanely ridiculous clerical questions. Here is something I wrote a few years ago.

– Why AMC Addendums Are Bane of an Appraiser’s Existence [Matrix/Miller Samuel]

Appraisers get few review questions on the quality of the valuation because AMCs generally don’t have reviewers with appraisal experience. I have found the reviewers to be 20 year olds armed with checklists. In the absence of understanding values or the local markets they are serving, AMCs have to work hard to justify their huge cut of the appraiser’s fee to their bank client. Unfortunately, they take a pound of flesh out of the appraiser trying to do their job in the process.

The Coester AMC Lawsuit in Maryland

Here is an incredible and essential read for all appraisers. Ask yourself after you read the following documents whether you want to be associated with an AMC like this? I remember seeing a quote on an appraisal a long time ago from the adversary’s appraisal (the one competent thing in their report) in a litigation: “An appraiser is measured by the clients they serve.”

If you’re tight on time, just read the amended complaint below.

1. coesterlawsuit

2. coesteramendedcomplaint (expands from original lawsuit)

A Brilliant Idea

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them. They won’t become the bane of your existence, you’ll feel like Batman and I’ll actually like watching Dee Snider of Twisted Sister go acoustic.

See you next week.

Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants

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