Housing Analogies, Nerd Style

I started off the week with…

 

At first I was confused because I always fancied myself as a geek, actually a cool geek, emphasis on “cool.”

While attending an appraisal conference in the late 1990s, an appraiser overheard me explain to a friend how I sent a single email from Yankee stadium with my Palm Pilot using an attached modem. It was a huge deal (to me) circa 1998 as I exclaimed that it was the coolest thing ever. The eavesdropping appraiser interrupted the conversation with a loud, sarcastically toned “GEEK.” I turned and corrected him with, “no, cool geek.” He was flustered because I owned the label and I am sure he went back to his office to use his aol email account. He was later forced out the of the profession. Geeks win. I’m really not smart enough to be a nerd and I do have a social life. Still, the geek-nerd debate rages on.

Here are a few related observations that can be linked to housing if you really try:

weedspodcast

  • The political discourse is making us stupid. This podcast by Vox called “The Weeds” (no it’s not about pot) has to be one of the best discussions on how we interpret information that is fed to us. Don’t listen to this as a way to break down all the political rhetoric in the news (and we only have a full year of it to go), but rather listen to this on how we interpret information about housing. i.e. It’s a bubble. It’s a strong market. There is so much conflicting information presented to us that most of us seek out information to support our theory rather than keep an open mind to new insights – just like politics. It is an incredibly insightful discussion.

Ok, I feel much better. I hope you do too.

Making Charts About Miami as A Housing Geek Should

In my spare time I make a lot of charts on the housing markets I research. I don’t think there is an analogy I can use for this hobby, so here are a few on Miami residential housing market. Click any one to expand to their full glory.

3Q15Miami-inventory

3Q15Miami-DOMdisc

3Q15Miami-distressedshare

3Q15Miami-ASPnos

3Q15Miami-ASPdistressYOY

3Q15Miami-ASPdisc

The Power of Housing Analogies

pinksprinkleddonut

One of my appraiser/internet heroes, Ryan Lundquist of the Sacramento Real Estate Blog, loves housing market analogies. I do too and shared a few favorites with him, namely donuts and bubbles (balloon with a slow leak). Many people can better identify with a housing analogy than the direct information. I get it. Yet analogies are often used to mislead the readers as well.

In other words, donuts can also be bad.

Speaking of Housing Analogies, Bubble Makes A Comeback.

  • Britain’s Housing Bubble Gets Bubblier [Bloomberg Gadfly] britishbubbleBgadfly

  • San Francisco Fed study says this housing boom looks less precarious than last bubble [Market Watch] fedSFleverage

A Non-Political Economic Overview

Think back to my earlier request to ignore the political aspects of The Weeds Podcast and consider it in the context of interpreting information and our own built-in bias. Now ignore the political subject matter of this next piece (good grief I am getting pretty bossy) and look at the outlook of the economy over the next year.

Ben Casselman at 538 writes a great economic overview in the first part of his feature and includes a humongous infographic. Look the graphic in the context of the housing market. I find it to be quite helpful in understanding the mediocrity our economy despite all the hype about expected interest rate increases in December. It’s not so obvious at this point.

538economyoutlook [click to expand]

Appraisal Fee “Chunk” And Sports Agent Analogies Better Explain Appraiser Shortage

Amy Hoak at Marketwatch penned a good article The number of real estate appraisers is falling. Here’s why you should care My only criticism of the piece is that it didn’t emphasize the actual economic situation that appraisers face and it all comes down to money.

For residential appraisers, business isn’t as lucrative as it once was. Federal regulations in 2009 led to the rise of appraisal management companies, which act as a firewall between appraisers and lenders so appraisers can give an unbiased opinion of a home’s value. But those companies take a chunk of the fee, cutting appraiser compensation. Some community lenders don’t use appraisal management companies, according to Coyle, but they are often used by mortgage brokers and large banks.

The appraisal profession was never “lucrative” as that word infers. Over the past 3 decades (my experience timeline), the vast majority of U.S. residential real estate appraisers made a modest living. Since the changes to the profession in 2009 that are now part of Dodd-Frank financial reform, the appraisal management company “chunk” cited in the article is often 50% of the appraisal fee paid by the consumer (even though the consumer has no understanding that this is happening). AMC fees can be less than 50% and with the shortage of appraisers willing to work for half the market rate, more AMC’s are offering to only take a third or a quarter of the market rate but with a ton of clerical baggage.

Sports agents usually get a 10% cut of a professional athlete’s contract and some my get 20%. But in that analogy, the sports agent is working for the athlete. In our world as appraisers we are working for the AMC. It’s a perverse “taking” of a profession’s livelihood with literally no value add to the appraiser. And arguably, if not incredibly, no value add to the lender.

50 Cents on the Dollar and Herding Cats Analogies

The growing discussion about the shortage of appraisers really is a shortage of appraisers willing (or able) to work for 50 cents on the dollar. The good appraisers have moved on to other disciplines outside of bank appraisals or have retired. The problem now is that the AMC industry, who has decimated the appraisal industry is the same industry that has built automated valuation models (AVM). They are positioning themselves to go in the AVM direction if the appraisal fee issue is not worked out – easier to remove the human element of valuation. Deep down – institutionally speaking – banks don’t really care about the reliability of the valuation opinions they use for the collateral in their lending decisions. Past actions by the Federal government as a backstop has diffused any real focus on resolving the reliability of appraisals for lending purposes. The tax payer will always back them up, right?

As my good friend Tom Allen, a colleague in RAC, who is an appraiser in Tulsa, Oklahoma once told me (paraphrased). How does an AVM tell the lender a house is occupied with a hoarder and 100 cats?” (Incidentally, I am a member of RAC which is an organization of the best residential appraisers in the U.S.)

Still, I really prefer donut analogies.

If you need something sweet in your life (particularly on Friday afternoons), sign up for my Housing Note here. And be sure to share with a friend or colleague. They’ll feel good, you’ll feel better and I’ll be satiated.

See you next week.

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

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