Flooded Houses and Dry Land’s Current Economic Status
It’s the end of summer, and there isn’t much news on housing in the context of Hurricane Harvey – so this will be an abbreviated Housing Note (except for appraisers). Harvey has reminded us of its predecessors including Katrina and Sandy, with the latter having a direct impact on where I both live and work. I found the slew of Houston citizen rescuers inspiring, representing the best of what our country has to offer. Oh, and the fish.
I donated to the relief effort through NFL player J.J. Watt’s fundraiser for Houston at youcaring.com which went viral – he started with a modest goal of raising $200,000 but has now received over $14,000,000 – inspirational.
Because everything is bigger in Texas, here are a couple of things to consider for context:
- The world’s population would fit in Texas if they lived at the same density as New York City.
- If you took all the rain that fell from Harvey and placed it in the District of Columbia, the height of the water would be almost the height of the Empire State Building (±1,400′).
Although it was not heroic in the context of the first responders, I found the following video riveting. It followed someone trying to save his cars and possessions in his home. He was calm, clear thinking and did what he could with what he had as the water continued to rise.
ok, back to dry land…
Mortgage Rates Reach Lowest Level in 2017
Can we please stop talking about rising mortgage rates as a threat to housing? As I’ve been saying for more than a year – the market doesn’t believe the Fed and their push for higher rates. It is amazing to think that television pundits were routinely calling for four rate increases earlier this year. Ridiculous. Don’t get me wrong though. Higher rates will be good for housing once they are earned, economically speaking. They’ll substantiate more normal credit conditions which should more than offset those that are priced out by higher rates.
Yields have been range bound as rates this entire cycle, haven't seen a 5 handle on the 30 year fix since early 2011 pic.twitter.com/vHfbobfB8f— Logan Mohtashami (@LoganMohtashami) August 31, 2017
Job growth has been sputtering this year…
And the US Dollar is weakening…
But it remains far from 2014 levels when foreign nationals were snapping up newly built Manhattan condos.
FinCEN closes the “wire transfer” loophole with new GTO
The US Treasury’s Geographic Targeting Order removed the workaround for entities purchasing real estate above certain thresholds without a mortgage by now including the use of wire transfers. FinCEN is trying to stop money-laundering, and kleptocracy purchases of real estate in the U.S. Newly developed high-end real estate was a preferred way accomplish this until recently. FinCEN has been hard selling the benefits of this since it began in 2015.
Such purchase is made, at least in part, using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, or a money order in any form, or a funds transfer.
Have a great holiday weekend!
There are a lot of great links for Appraiserville below, and I’ll talk about them over the next few weeks. But right now, there is some more timely business to attend to. I’m even skipping over the revelation that Prince’s favorite color was NOT purple. It was my favorite color all along!
Appraisal Institute Board of Directors Accepts CEO Fred Grubbe’s Resignation, Membership Heaves A Sigh of Relief
The CEO of the Appraisal Institute for the past decade had resigned. The notice came in the form of an email to the membership of AI (see the bottom of post). I quit AI early in Grubbe’s term – during the chaotic Sellers’ presidency as I saw the organization deteriorate into petty, self-serving squabbles and the specter of threats towards any dissent.
I would like to see the organization survive and even thrive but this will only happen if complicit leadership is purged – just as Region III just tried to push for a few weeks ago.
On a national level, AI National under Grubbe’s leadership ignored its membership for years, especially residential members. This action is only a first step towards returning the organization to its roots of servicing the interests of its membership.
Time to Clean House
Other leaders that carried the torch for Grubbe need to go. They were part of the problem – this inner circle could have stopped the deterioration of the organization by pushing back rather than carrying the water so to speak. This small inner circle of “leaders” were never really leaders at all. They followed Grubbe’s will and basked in the glow of the power they held in the organization with an arrogance to those outside their inner circle. They may have worked hard, were friendly people on an individual level and may have meant well, but they didn’t appear to question the changing direction of the organization as it hurtled towards failure – where it is now.
I have listed dozens of poor decisions or actions of AI National senior leadership since late last year within this REIC forum but here are some of the key fails:
- Ignored the residential membership and let the SRA brand deteriorate
- Added additional designations such as AI-GRS which only served to dilute the value of MAI
- Shamefully sought to undermine The Appraisal Foundation at all times
- Went to Congress last fall and misinformed congressional leaders in sworn testimony that a non-existent “appraiser shortage” was the fault of regulations.
- Was quoted in media – saying that there was an “appraisal shortage,” not understanding, as our largest industry trade group, that there was only “a shortage of appraisers willing to work for half the market rate” – AI is supposed to champion appraisers, not marginalize residential membership by their ignorance
- Provided no transparency to membership on major and most minor decisions
- Did not share relationships and objectives that were counter to membership interests – such as an FNC relationship that was hidden for a decade
- Showed no compelling evidence of financial acumen yet decided without out input from membership to take nearly all local chapter funds in the “taking.”
- I’m have been told the BOD swears allegiance to the CEO and senior executives. They are there to serve them, not the membership
- Bullied members or admin staff who spoke out against the organization (one chronicled on REIC)
- Worked closely with REVAA (AMC trade group), undermining the residential appraisal industry they ignored
- Reportedly spent millions (was not disclosed to membership) on international recruitment, giving speeches and jetting around the world with hopes of growing the organization with nominal, if any, success
- Championed alternative valuation standards to allow evaluations so appraisers could have the chance to do $25 evaluations and confuse the marketplace with multiple standards
- The combination of the bashing of ASC/TAF in public, the deal with FNC, the push for evaluations and alliance with REVAA suggested a financial upside for senior executives on a personal level, but there was no forum offered to membership to quell these widespread rumors
- Had Scott DeBiasio flying all over the U.S. to champion alternative valuations but not tell local AI chapter boards
- Had Scott DeBiasio flying all over the U.S. to champion alternative valuations but skip past state real estate boards and go straight to their legislature
- Had Scott DeBiasio flying all over the U.S. to champion alternative valuations and not tell the residential membership they were undercutting their livelihood
The following list of these insider names are too short, but I would hope these individuals resign now.
- Jim Amorin, President, and Acting CEO (on his second term for an unexplained reason – yet plenty of other leaders outside Grubbe’s tight inner circle could have performed the job.)
- Scott DiBiasio
- Bill Garber
- Scott Robinson, Immediate Past President
CEO Resignation Announcement
Jim Amorin’s farewell letter to CEO Fred Grubbe went beyond just being cordial. He was really straining to find any accolades of note, thanking Grubbe for bringing “national reserves” to a record high. I’m willing to bet that only a handful of AI membership even knows what that means. I know I don’t. Instead, I prefer to focus on the collapse of membership under Grubbe’s reign, financial mismanagement (i.e., international recruiting boondoggles, speeches in Serbia and Romania, trips to China and the toxic culture that now exists. Only a small number of members trust anything coming from AI National. It is a serious problem in the context of the organization’s survival.
There is so much more needed to get the AI house in order, but this event is one important small step in the right direction.
What are next actions of the Appraisal Institute to ensure both survival and relevance?
The membership and chapters need to start pressuring the board of directors to enable the following, or they are directly responsible for the eventual collapse of the Appraisal Institute:
- Fire national leadership immediately as recommended by Region III – there can be no carryover – all need to be removed, or NOTHING changes and AI National collapses in short order. As I’ve said before, they carried out the orders of Grubbe, effectively destroying the relevance of AI National. It’s a toxic condition that must be purged from the organization.
- Immediately urge all, or at minimum 20 or 30 largest chapters to appoint residential & commercial committees to articulate what they would like to see AI do.
- All discussions start with an open slate – no agenda other than to focus on a reorganization, returning to relevance and working to create a way to survive.
- All groups meet 3 times in the next 45 days.
- Openly share conclusions with other chapters and national, a shocking departure from existing organizational culture
- After sharing for 30 days, reconvene each to hone in on goals
- Look into moving out of Chicago and not to D.C. to ensure a fresh start.
- Freeze AI National money grab I refer to as the “taking.”
- Investigate the FNC fiasco (possibly $60-70 million is a lot to leave on the table without investigation.), i.e., Is insider trading allowed within the FNC arrangement?
- Investigate the international recruiting boondoggle with no accountability (with unsubstantiated rumors of first class airfare and hotels for friends and family).
- Refer the national leadership activity to criminal authorities if investigations warrant it.
Feedback for July 2017 Governance Restructure Project Team (GRPT) Recommendations
Attached is some very thoughtful feedback from Ron DeVries, MAI, SRA on the AI National governance proposal. The entire letter is attached below. Here is the closing paragraph:
Once again, thanks to the team for putting the recommendations together. It appears, however, as they relate to Education Delivery, the recommendations aren’t ready for prime time. They appear to be a starting point to flesh out a structure that has not yet been developed. This is coming across as “National is going to take over education delivery – what do you think?”
AI Region III Resolution to Remove National Leadership Did Not Pass, But…
An unprecedented action was taken by Region III to remove the CEO and executive committee, but the resolution did not get enough votes. I was told by a chapter president in the region that the sentiment was there, but the consensus was that it was too soon. I also received this note from a member of Region III.
I am sure you already know that Region III was not able to pass the resolution calling for the national leadership resignations. Regardless, the main goal appears to have been accomplished, with the resignation of Fred Grubbe. Region III, however, did pass a resolution to not affirm the GSP pending further study and consideration by the AI membership. The resolution calls for a number of actions by National, and for all chapters to hold meetings concerning the GSP.
This person is sending me the GSP resolution, and I’ll post on REIC when it goes live.
Salt of the earth
We, appraisers are a salty lot, full of cantankerous opinions, frequently attacked by domesticated animals and we are experts at taking pictures of toilets. So who would ever marry us?
Thankfully my wife of 33 years, who is a certified appraiser, spends her time these days as our CFO, managing comp and health care benefits of our staff among other things. This is a perfect match for me according to a visualization shared on Flowing Data.
Voice of Appraisal asks us to ponder our future
Lots of things going on in our industry these days and Phil is asking us to reflect a little.
A Brilliant Idea
If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them. They’ll save you from disaster, you’ll donate to the Houston relief effort, and I’ll stay dry.
See you next week.
Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Reads, Listens and Visuals I Enjoyed
- GEOGRAPHIC TARGETING ORDER [FinCEN]
- China’s Housing Prices Growing Fastest in the World [Mansion Global]
- Freddie Mac: Mortgage rates hit second-consecutive 2017 low [Housingwire]
- There Doesn’t Go the Neighborhood: Low-Income Housing Has No Impact on Nearby Home Values [Trulia's Blog]
- Total Dollar Volume Falls 19% Across BC Real Estate [Vancity Condo Guide]
- What would it cost to preserve East Harlem's character? 751 apartments [Crains New York]
My New Content, Research and Mentions
- This penthouse in Brooklyn Heights looks poised to set a price record [The Real Deal NY]
- Everything you ever wanted to know about sponsor apartments but were afraid to ask [Brick Underground]
- How can a millennial without a trust fund afford to buy in NYC? [Brick Underground]
- U.S. cracks down on money laundering in real estate [Miami Herald]
- So Your Neighbor Put Up an Offensive Flag—What Can You Do? [Realtor.com]
Appraisal Related Reads
- Fannie and Freddie say appraisals are not always necessary [Washington Post]
- Appraising Home Purchase Appraisals [Philadelphia Fed]
- Being okay with saying NO in real estate [Sacramento Appraisal Blog]
- 9 Unintended consequences from no appraisal mortgages [Birmingham Appraisal Blog]
- AVMs to Finally Replace Appraisers? [Working RE]
- Real Appraising, Let's Get Back To It [AppraisersBlogs]
- Is It Time to Dump Real Estate Appraisals? [Ten-X Blog]
- Appraisal-free home sales cut costs, but may come with risks [Chicago Tribune]
Extra Curricular Reads
- Harvey has unloaded 24.5 trillion gallons of water on Texas and Louisiana [Washington Post]
- Turns out Prince’s Favorite Color Wasn’t Purple — so What Was It? [Twenty Two Words]
- Jud Heathcote, 90, Dies; Coached Michigan State to Basketball Title [NY Times]
- Did 3 NASA Astronauts Really Hold a 'Space Strike' in 1973? [Atlas Obscura]
- You Are Making Scrambled Eggs All Wrong [Bloomberg]
- News of the Day – What do Waffle Houses Have to Do with Risk Management? [FEMA.gov]
- The History of Punk Rock in 200 Tracks: An 11-Hour Playlist Takes You From 1965 to 2016 [Open Culture]
- The Wild and Dark History of the Empire State Building [6sqft]
- Occupation Matchmaker