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Posts Tagged ‘NAR’

Broken Appraisal: Lack of Market Knowledge Overpowers Lack of Data

January 27, 2013 | 6:06 pm | |

There was a really good appraisal story in the Sunday Real Estate Section this weekend by Lisa Prevost focusing on appraising high end properties whose theme is well-captured in the opening sentence:

As home sales pick up in the million-dollar-plus market, deals are being complicated by unexpectedly low appraisal values.

The higher the price strata of the market, the smaller the data set is to work with so the conventional wisdom seems to be that less data = more unreliable appraisals. However I believe the real problem is lack of market knowledge by more appraisers today as a result of May 2009’s Home Valuation Code of Conduct (HVCC) – the lack of data at the top of the market merely exposes a pervasive problem throughout the housing market.

To the New York Times’ credit, they are the only national media outlet that has been consistently covering the appraisal topic since the credit crunch began and I appreciate it since so few really understand our challenges as well as our our roles and relationship to the parties in the home buying and selling process. Appraising gets limited coverage in the national media aside from NAR’s constantly blaming of the appraisers as preventing a housing recovery (in their clumsy way of articulating the problem, they are more right than wrong).

Here’s the recent NYT coverage:

January 27, 2013 Appraising High-End Homes
January 11, 2013 Understanding the Home Appraisal Process
October 12, 2012 Scrutiny for Home Appraisers as the Market Struggles
June 14, 2012 When the Appraisal Sinks the Deal
May 8, 2012 Accuracy of Appraisals Is Spotty, Study Says
September 16, 2011 Decoding the Wide Variations in House Appraisals

The general theme and style of coverage comes about when Realtors start seeing an increase in deals blowing up that involve the appraisal. The Prevost article indicates that higher end sales are more at risk because the market at the top (think pyramid, not as in ponzi) is smaller and therefore the data set is smaller.

This may be true but I don’t think that is the cause of the problem but rather it exposes the problem for what it really is. I contend that the problem starts with the appraisal management company (AMC) industry and how it has driven the best appraisers out of business or pushed them into different valuation emphasis besides bank appraisals by splitting the appraisal fee with the appraiser (the mortgage applicant doesn’t realize that half their appraisal fee is going to a bureaucracy).

My firm does a much smaller share of bank appraisals than our historical norm these days but it is NIRVANA and we’re not likeley to return to our old model anytime soon.

Since the bank-hired AMC relies on appraisers who will work for half the market rate and therefore need to cut corners and do little analysis to survive, they generally don’t have local market knowledge often driving from 2 to 3 hours away.

Throw very little data into the equation as well as a very non-homogonous housing stock at the luxury end of the market and voila! there is an increased frequency of blown appraisal assignments.

There is always less data at the top of the market – the general lack of expertise in bank appraisals today via the AMC process is simply exposed for its lack of reliability. Unfortunately the appraisal disfunction affects many people’s financial lives unnecessarily such as buyers, sellers and real estate agents (and good appraisers not able to work for half the market rate and cut corners on quality).

The appraisal simply is not a commodity as it is treated by the banking industry. The appraisal is a professional service so by dumbing it down through the AMC process, they have succeeded in nearly destroying the ability to create a reliable valuation benchmark on the collateral for each mortgage in order to be able to make informed decisions on their risk exposure.

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[Housing Recovery Update] Proclamations Over Reasons, Statistics Over Logic

December 13, 2012 | 10:20 am | |

Once a month a local real estate broker passes out monthly updates of our local Connecticut housing market at our commuter train station. He’s a nice affable guy and I get to hear him explain the market to people as we wait in the warm station. He said this to me after I took a look at his handout this morning,

“The statistics aren’t too shabby, eh?”

And I smiled and responded, “that’s the power of record low mortgage rates.” to which he gave me the “thumb’s up” gesture.

And he’s right, his MLS statistics show a very much improved housing market from a few years ago and nearly all of the improvement has been mortgage rate related.

His view of housing is not unlike most public economic prognosticators from Wall Street, NAR, NAHB and real estate brokerage firms, consumers and general in-the-media-all-the-time types.

However few, if any, prognosticators understand why or seem interested in understanding whether it is sustainable (aka forecasting a trend). Once a metric shows promise, it will rise forever, or something like that.

Here’s my town recap for November being presented as a report (with a wildly low 15 sale data set). All the percentages reflect November 2012 over November 2011:

  • New Listings -40%
  • Pending Sales +36.4%
  • Homes sold +15.4%
  • DOM +53%
  • Average Sales Price +29.4%
  • Average Dollar Volume +49.3%

Despite the low data set, the results are remarkably consistent with national trends. Now look at why these metrics actually changed:

  • New Listings -40% [tight credit pressing inventory down because sellers can’t buy]
  • Pending Sales +36.4% [record low (and continuing to fall) mortgage rates + high rents]
  • Homes sold +15.4% [behind pendings because pace of sales accelerating as rates fall]
  • DOM +53% [older stagnant inventory is getting sold off from lack of supply]
  • Average Sales Price +29.4% [more high end sales are moving this year]
  • Average Dollar Volume +49.3% [same as above]

If you pull the plug on low rates, the housing market (literally) plunges. No one is suggesting this is the scenario that will occur but the national housing market feels incredibly fragile to me.

But why should I (or anyone else) actually care whether we understand what’s actually going on? The stats show sales and price numbers are higher than last year – “bullet dodged” – that’s all we need to know – we did the math.

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NAR Membership Flows With Housing Market

December 6, 2012 | 11:07 am | | Charts |


[click to expand]

Membership is very close to falling below the 1M threshold (1,005,838) for the first time since 2003.

The rise and fall of NAR membership with the S&P/Case Shiller Home Price Index is a logical trend in a commission driven profession with a low barrier to entry – although one would think membership would correlate better with number of sales rather than prices (Case Shiller or CSI is a price index i.e., not based on sales).

The public strongly and incorrectly relates the health of housing with prices rather than sales. Sales activity leads price direction by about a year and membership lags prices so the membership correlation to price probably reflects the time it takes people to jump into the profession when things seem to improve – the chart suggests 1-2 years. You can see the membership lag prices during the boom, at peak and when the market crashed.

In the period like now where the market is transitioning from bad to good, the sharp agents have the opportunity to do very well with less competition from those who were only in it for the quick buck.

The appraisal profession likely shows a similar pattern but perhaps would be more closely aligned with refi applications. On my “to do” list.

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Get Down With It: Falling Mortgage Rates Are Not Creating Housing Sales

November 27, 2012 | 11:16 am | | Charts |

Inspired by my analysis of yesterday’s WSJ article, I thought I’d explore the effectiveness of low mortgage rates in getting the housing market going. I matched year-to-date sales volume where a mortgage was used and mortgage rates broken out by conforming and jumbo mortgage volume.

Mortgage volume has been falling (off an artificial high I might add) since 2005, while rates have continued to fall to new record lows, yet transaction volume has not recovered. I contend that low rates can now do no more to help housing than they already have.

Even the NAR has run out of reasons and is now focusing on bad appraisals as holding the market back (I agree appraisal quality post Dodd-Frank is terrible and is impacting the market to a limited extent – and I secretly wish appraiser held that much sway over the market).

I’m no bear, but the uptick Case Shiller’s report today (remembering that Case Shiller reflects the housing market 5-7 months ago) still shows slowing momentum and all 2012 year-over-year comparisons in the various national reports are skewed higher from an anemic 2011.

Five years of falling mortgage rates have only served to provide stability in volume. The monetary and fiscal conversation ought to be on ways to incentivize banks to ease credit – falling rates only makes them more risk averse.

Of course a significant drop in unemployment would likely solve the tight credit problem fairly quickly.

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Why Doesn’t NAR Lobby Against Standard Time?

November 4, 2012 | 1:30 pm | |


[click to read about Daylight Savings Time]

We got an extra hour of sleep last night (in theory) as we left Daylight Savings Time.

I came across this post yesterday that got me thinking (more like chuckling), why doesn’t the National Association of Realtors rally public support for shifting the US from using Standard Time to go all Daylight Savings Time in order to promote more housing activity?

Afterall, who wants to get up early and view a purchase or rental property and isn’t housing significant part of the economy? Daylight in early hours benefits farming while daylight in later hours benefits housing activity. Agriculture is about 1% of GDP and housing is 17% to 18% of GDP.

From Wikipedia:

As modern societies operate on the basis of “standard time” rather than solar time, most people’s schedules are not governed by the movements of the earth in relation to the sun. For example, work, school and transport schedules will generally begin at exactly the same time at all times of the year regardless of the position of the sun…if “standard time” is applied year round, a significant portion of the longer sunlight hours will fall in the early morning while there may still be a significant period of darkness in the evening.

Admittedly this idea is way out there, and NAR would be unlikely to lobby this point anytime soon because they would look foolish.

I guess I just don’t like it getting dark at 5pm and I don’t even sell real estate.

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Housing Trends & Talk Like A Pirate Day 2012 (10th Anniversary)

September 19, 2012 | 1:42 pm | |

Well, NAR released the August 2012 existing home sale numbers today. Yawn.

More importantly, it’s International Talk Like A Pirate Day and I’ve marked this day on my calendar for nearly as long as the 10-year run it’s had. Just mentioning the annual event to my kids makes them worry about me and yet be embarrassed for me at the the same time.

For more about this important holiday, you can get the story and go right to the founder’s web site.

And yes, home sales are up. [Pirate talk translator]



August Existing-Home Sales and Prices Rise [NAR]
On Talk Like A Pirate Day Jonathan Miller Tells It Like It Is [Curbed DC]
International Talk Like a Pirate Day [Wikipedia]
International Talk Like A Pirate Day [Original Site]
Google’s Pirate Themed Home Page [Google]

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NAR and Florida Realtors to Create Repeat Sales Index: Why?

September 4, 2012 | 6:00 am | |

Last week the Florida’s state Realtor association announced they are developing a repeat sales index for tracking the state’s housing market. NAR is doing the same thing on a national level. My first thought was, huh?

The new Florida Realtors Real Estate Price Index will use data from the Florida Department of Revenue to chart home prices for the state and metro areas during the last 17 years.

Why create yet another housing index?

NAR has been sharply critical of the repeat sales methodology for years – and now to suddenly create one because it works better? Damaging logic and once again undermining NAR’s credibility and branding.

The motivation for the creation of a new index seems to be the popularity of the Case Shiller Home Price Index which has been a thorn in NAR’s side since it was introduced a number of years ago. Ironically, NAR enabled Case Shiller to thrive from NAR’s own inability to become a neutral trusted advisor of the exclusive housing data they publish. The culture at NAR Research enabled the two most recent chief economists Lereah and Yun to consistently interpret the numbers with an almost cartoonish glowing angle that has caused severe damage to the NAR brand.

In other words, Realtors and their associations have long ago missed the opportunity to be a reliable provider of real estate stats, but that’s really ok. After all, the association is a trade group and any stats they produce are, by definition, tainted even if they aren’t. Case in point: NAR just revised their Existing Home Sales stats after data provider CORElogic discovered there was a significant error and pressured them to do a revision. NAR had double counted about 2M sales since 2007.

What is a repeat-sales index?

A repeat sales index measures the difference in price from sales that recently sold and their prior sale. New development is omitted because those units have never sold before – a huge characteristic of the Florida housing market. Of course if the property was gut renovated, doubled in size, torn down and rebuilt, a repeat sales index does not know this. A repeat sales index is also subject to the same skew in housing type that a hedonic (i.e. Existing Home Sales) index is and is therefore adjusted using varying formulaic methodologies.

A repeat sales index does not reflect true seasons in housing. Yes there is a nominal difference between their seasonally adjusted and non-seasonally adjusted trends, but it does not show the spring rush and winter doldrums as they actually occur. There seems to be a need by economists to show a steady line rather than a seasonal visual a consumer would better understand.

Whats wrong with the Case Shiller Index?

I’ve been quite critical of the Case Shiller Index since I began this blog in 2005 namely because:

  • it is 5-7 months behind the market;
  • it excludes co-ops, condos and new development.

I do admire Robert Shiller and Karl Case as pioneers in this field but the CS index was NEVER intended to be a consumer tool used to measure housing. It was meant to be the basis for allowing Wall Street to hedge the housing market. A logical goal indeed, but CS was conceived before it was feasible to “game it” i.e. many economists and analytics firms can now accurately project the results of the index in advance. Not a good thing for investors who want to bet on it which explains why such limited trading actually occurs.

There are a lot of housing indices these days. There are also many new data companies that can do analytics a lot better than Realtors can because they only do analytics for a living. Without neutral commentary, how do more housing indices by NAR or Florida’s association make the picture any clearer to the consumer (and Realtors)? Instead I think the Florida association should be focusing on ways to help their members be more successful.



Case Shiller Index [Standard & Poor’s]
Existing Home Sales [NAR]
Florida Association of Realtors [Home Page]

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[In The Media] BeastTV – The Number with Dan Gross 8-29-12

August 29, 2012 | 1:54 pm | | Public |

Got to talk housing with my friend Dan Gross, the Global Business Editor at Newsweek & The Daily Beast on his BeastTV segment “The Number”:

THE NUMBER: 101.7 That’s the pending home sales index from the National Association of Realtors, up over 12% from a year ago. Dan Gross and The Matrix’s Jonathan Miller reveal why we should be cautiously optimistic.

Their offices are located in the IAC building in Manhattan which is one of my faves – looks like a meringue pie. Here’s my photo from the cab:

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[In The Media] Yahoo!’s ‘The Daily Ticker’ With Dan Gross 7-19-12

July 19, 2012 | 2:17 pm | Public |



Had a spirited conversation with my friend Dan Gross, the economics editor at Yahoo! Finance who has a new book out.

Something I thought about before the show that I sort of mentioned but I will mention a lot more going forward:

The state of the housing market is a process rather than a moment.
ie “bottom” becomes “bottoming”, “recovery” becomes “recovering”, “turned the corner” becomes “turning the corner”.

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[Ellen Show Video] Super Awkward Realtor Branding

June 21, 2012 | 1:58 pm | | TV, Videos |

Tom Royce over at Real Estate Bloggers – who always has interesting things to check out – posted a video that will make you “squirm.”

How NOT to brand yourself as a professional.

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[NAR] Existing Home Sales Continue to Edge Higher +10% Y-O-Y

May 22, 2012 | 2:21 pm | |

NAR’s Existing Home Sales numbers continue to edge higher. In this chart I annualize the non-seasonally adjusted and seasonally adjusted results. Think there isn’t seasonality in housing sales?

Here’s a good summary by Peter Coy at Bloomberg Businessweek.

No doubt a big reason was the improvement in affordability. The interest rate on a 30-year fixed-rate mortgage has continued falling since the period covered by the NAR report, portending better times ahead. Freddie Mac (FMCC), the mortgage-buying giant, says the rate was 3.79 percent in the week ended May 17, the lowest since it began keeping records in 1971. The Realtors’s index of affordability hit a record high in the January-March quarter. It factors in sales prices of existing homes, mortgage rates, and household income, which is slowly strengthening as the labor market improves.

And here’s a trend on inventory and absorption (months supply). Inventory continues to slide (not seasonally adjusted).


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[Press Call] Steve Berkowitz CEO, Sue Stewart SVP, Move, Inc. Realtor.com, Move.com, MortgageMatch.com

December 1, 2010 | 2:40 pm | | Podcasts |

Read More

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