Home Prices Expected to Drop Another 11 Percent before Rising in Mid-2010

Home Prices Expected to Drop Another 11 Percent before Rising in Mid-2010

The national median home price is expected to drop an additional 11.3 percent before bottoming in June 2010, according to financial information and analysis firm Fiserv. After bottoming out, Fiserv predicts some stabilization and then a slight increase in value of 3.6 percent. Mark Zandi, chief economist with Moody’s Economy.com, agrees with Fiserv. “I think more price declines are coming because the foreclosure crisis is not over,” Zandi told CNN/Money.com.

Over the next year, Fiserv noted that prices will drop in 342 of the 381 markets. Miami is expected to take the heaviest hit, with prices falling 29.9 percent by next June in addition to the 48 percent drop in value the market had during the past three years. By June 2011, the median home price in Miami is expected to be $142,000.

Other areas expected to have significant drops in value include Orlando, Fla., with a fall of 27 percent; Hanford, Calif., with a drop of 26.9 percent; Naples, Fla., with a decrease of 26.8 percent; Las Vegas, with a drop of 23.9 percent; and Phoenix, with a fall of 23.4 percent.

Fiserv’s outlook differs from the S&P/Case-Shiller Home Price Index, which suggests that the housing market already may be stabilizing after increasing 3.6 percent since May 2009. Brad Hunter, chief economist at Metrostudy, told CNN/Money that he agrees with Fiserv. “I’m afraid Case-Shiller may be just a temporary reprieve,” Hunter said, pointing out that a wave of foreclosures will soon hit that will cause home values to decrease, and that the first-time home buyer tax credit has been skewing current housing data.

Fiserv noted that 33 markets will actually post gains over the next year while six will remain flat. With an expected increase of 3.4 percent, the Kennewick, Wash., metro area is expected to fair the best. Following closely behind are Fairbanks and Anchorage, Alaska, which are expected to increase 2.5 percent and 2.1 percent, respectively, and Elmira, N.Y., which is expected to increase 1.8 percent.

Prices in New York City are expected to fall an additional 17.4 percent by June 2011, while Chicago and Los Angeles are forecasted to fall an additional 25.2 percent and 20.2 percent, respectively, by June 2010. The Detroit metro area, which has the lowest home prices in the country, is expected to fall an additional 9.1 percent.

Chase changing appraisal requirements

Chase, the third largest mortgage lender, with a 6% market share has changed their appraisal policies.

Here's a quote:"And while we're talking about appraisals, Chase Correspondent clients were told that Chase is making changes to their Collateral Policy which became effective October 2. They are eliminating Chase Approved Appraiser status, establishing minimum appraiser requirements, validating review and ineligible appraiser status, and eliminating First American Appraisal Services (eAppraiseIT) as a Chase-approved Appraisal Management Company (AMC). In fact, the Chase Appraiser Web site has been updated to remove all Chase Approved Appraisers. Correspondents can immediately take advantage of the revised minimum appraiser requirements and validation of Chase Ineligible status. Chase Home Lending will no longer approve, suggest or dictate the use of any specific appraisers. All appraisers with one of the valid state appraisal license/certifications (state license, state certified residential, state certified general) are permitted to complete appraisal services for loan transactions sold to Chase based on loan amount & complexity parameters. (A field review by a State Certified Appraiser is still required when the original appraisal is prepared by an appraiser in a Chase Review status.)"

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August 19, 2009

Back to Business

In Appraisal Shift, Lenders Gain Power and Critics

By DAVID STREITFELD

Mike Kennedy, a real estate appraiser in Monroe, N.Y., was examining a suburban house a few years ago when he discovered five feet of water in the basement. The mortgage broker arranging the owner’s refinancing asked him to pretend it was not there.

Brokers, real estate agents and banks asked appraisers to do a lot of pretending during the housing boom, pumping up values while ignoring defects. While Mr. Kennedy says he never complied, many appraisers did, some of them thinking they had no choice if they wanted work. A profession that should have been a brake on the spiral in home prices instead became a big contributor.

On May 1, a sweeping change took effect that was meant to reduce the conflicts of interest in home appraisals while safeguarding the independence of the people who do them.

Brokers and real estate agents can no longer order appraisals. Lenders now control the entire process.

The Home Valuation Code of Conduct is setting off a bitter battle. Mortgage brokers, lenders, real estate agents, regulators and appraisers are all arguing over whether an effort to fix one problem has created many new ones.

The agents, maintaining that the changes are effectively blocking home sales by encouraging the use of inexperienced appraisers, are asking Washington to suspend the code until 2011. For their part, appraisers acknowledge that the change may have been well intentioned but contend that it has no teeth and is undermining the economics of their profession.

“We’ve been begging for years for enforcement of existing state and federal laws regulating appraising,” said Mr. Kennedy, a leader in the appraisal community. “We thought we were finally going to get that. But the code is doing nothing except putting ethical appraisers out of business.”

Financial change is one of the most contentious issues in Washington, and efforts to fix even widely acknowledged problems seem stalled. The attempt to change the appraisal system is an example of how difficult it can be to adopt changes that are good in theory and also work in practice — while simultaneously winning support from warring interest groups.

“The real estate industry is incredibly complex,” said Josh Denney, a lobbyist with the Mortgage Bankers Association. “If you take one piece and tinker with it, it causes friction throughout the process.”

The Home Valuation Code of Conduct had an unusual origin. It was developed by the New York attorney general, Andrew M. Cuomo, who persuaded the big federal mortgage agencies, Fannie Mae and Freddie Mac, to adopt it. That has effectively made it national policy.

Putting appraisals completely in the hands of lenders may sound like a good idea in principle, because it is supposed to be lenders who are putting their money at risk in a home loan.

But the reality is that many companies that write home loans these days do not have much incentive to worry about the accuracy of appraisals. That is because the companies do not keep the loans on their own books, instead selling them to Fannie Mae or Freddie Mac.

“The code is a formula for continued problems with fraud,” said David Callahan, a senior fellow with the public policy group Demos who has studied appraisals. “Appraisers have been asking for a long time for a reliable firewall between themselves and lenders, and are further from it than ever.”

Appraisers Pressured

Before real estate prices went out of control, appraisal work was straightforward. The appraiser examined a property inside and out, judging it against the prices that similar properties in the neighborhood were fetching. If the appraisal value matched the sales price, the lender financed the loan.

As lending standards collapsed during the housing boom, appraisers were pressured from all sides. When the appraiser did not deliver a satisfactory price, the deal did not get done, and the broker, agent and lender did not get their fees. Homeowners also loved inflated appraisals, using them to take out as much as possible when they refinanced.

“I got daily calls from lenders and brokers saying, ‘Here’s the address. Can you get me $400,000?’ ” said Mr. Kennedy, who has been in the business since 1993.

When he responded that it was illegal for him to supply an unsupported value — or when he noted in his report defects that the client hoped he would ignore, like a flooded basement — the broker or lender dropped him for a more compliant appraiser.

Petition Notes Abuses

The honest appraisers saw that the situation was helping to drive housing prices beyond reason. A petition they started a decade ago, just as the long boom was getting under way, warned of “the potential for great financial loss” to the economy if the penalties for pressuring appraisers were not enforced. The petition also complained that honest appraisers were being blacklisted. It drew 11,000 signatures.

Regulators and lawmakers did nothing. A rising market covered all sins. Then the market turned, and the lawsuits began.

In late 2007, Mr. Cuomo filed suit in New York Supreme Court against the data company First American and its subsidiary eAppraiseIT for fraud.

EAppraiseIT is an appraisal management company, which means lenders hire it to hire appraisers. This method, First American stressed in its annual report, produced “unbiased valuations” that benefited “not only the homeowner and lender, but our nation’s economy.”

Washington Mutual, based in Seattle, was the biggest client of eAppraiseIT. (Mr. Cuomo could not sue Washington Mutual for jurisdictional reasons.) The suit, still in court, charges that eAppraiseIT let itself be pressured by Washington Mutual to revise appraisals upward to match the value of deals.

Washington Mutual collapsed last fall, the largest bank failure in the nation’s history.

Mr. Cuomo, convinced that the troubles with appraisals went far beyond a single case, began an inquiry into Fannie and Freddie’s role in the buying of fraudulent mortgages. Before that investigation could be concluded, the two finance companies agreed they would buy mortgages only from lenders that abided by a new code of conduct.

In its original draft, the code froze out brokers and agents and placed severe restrictions on lenders. They were forbidden from using their staff appraisers or an appraisal management company in which they had more than a 20 percent interest.

The American Bankers Association and the Mortgage Bankers Association fought the restrictions, saying they would increase costs to consumers. The lenders also argued that Mr. Cuomo had no jurisdiction over their federally chartered operations. Banking regulators, who saw their authority being usurped, agreed.

The final version of the code gives much greater leeway to lenders. For instance, lenders can hire their own appraisers if they “recognize” that complaints will be forwarded to regulators.

The appraisal world was stunned. Dave Biggers, the chief executive of A La Mode, a maker of software for appraisers, said, “It’s like telling me I can steal as long as I ‘recognize’ that complaints will be directed to the police.”

Benjamin Lawsky, a special assistant to Mr. Cuomo, defended the revised version. “Our goal was always for the code to eliminate the causes of appraisal inflation while minimizing any disruptive impact on the industry,” he said. “We believe we accomplished this.”

Since national lenders cannot maintain lists of appraisers in every community, they long ago began outsourcing the process to the management companies, who had claimed about 30 percent of the market before the code took effect. Now that the lenders are the ones ordering all the appraisals, the management companies are expanding their share.

Real estate groups say the management companies, with the competition from brokers and agents eliminated, are now trying to fatten their profit margins by hiring appraisers as cheaply as possible.

These inexperienced appraisers, often traveling many miles to a market they do not know well, are scuttling legitimate deals, the agents claim. This argument has resonated in Congress, where 55 legislators have sponsored a bill calling for an 18-month moratorium on the code.

Appraisal management companies and lenders say the agents’ charges are not true.

“We’re an easy scapegoat,” said Donald Blanchard, chief compliance officer of Lender Processing Services Inc., which works with 20,000 appraisers. “We’ve yet to see any quantifiable proof as to the problems that management companies are supposedly causing.”

The real source of trouble for independent appraisers, he suggested, is not the code but a changing economy.

“Appraisers want to go back to the way it used to be,” Mr. Blanchard said. “But it’s good business for us to demand more for less.”

Fees Decline

Terry and Andrea Hartlieb, longtime appraisers in Fort Collins, Colo., miss the old days.

Instead of developing relationships with brokers and agents, the Hartliebs must wait for a lender or appraisal management company to call. A year ago, they would make $350 for an appraisal that would take about five hours. Now the management companies offer as little as half that. The couple has laid off four appraisers who used to work for them.

One recent call was about a complex property that would take additional time. Mr. Hartlieb asked for a bigger fee. The response: “We can get it done faster and for less elsewhere.”

Mrs. Hartlieb said, “Buying a house is the largest expense of your life. Don’t you want the best professional advice about its value, not the cheapest?”

Appraisers might be earning less, but consumers are being asked to pay more. The cost of an appraisal is now about $500, up from $400, appraisers say, because of the management companies’ share.

Moreover, if the goal of the code is to lessen pressure on appraisers, it is not clear that is happening.

A memo from U.S. Bancorp, which is based in Minneapolis, was posted recently on Appraisers’ Forum, an online discussion group. The memo bluntly urged the lender’s appraisers to “try and get the value we need the first time.” (A U.S. Bancorp spokeswoman said the memo was “not an official document.”)

In an online poll of 2,250 appraisers by Working RE magazine, half the respondents said they sometimes felt that management companies were ordering them to come up with a value that would make the deal work.

Banks and appraisal management companies say appraisers can be hypersensitive. “To some appraisers, the fact that we call you and ask a question is pressure,” said Mr. Blanchard of Lender Processing Services.

Under the code, the role of deciding what is pressure is assigned to a new entity called the Independent Valuation Protection Institute. If appraiser complaints are deemed valid, the institute is supposed to forward them to regulators.

Seventeen months after it was announced, the institute has no staff and no appraiser complaint hotline. All that exists is a single Web page.

Mr. Callahan, who wrote about the trouble with appraisals during the boom, is dismayed that the problem cannot be fixed even during the bust.

“Appraisers play a key role in keeping real estate transactions honest,” he said. “But we as a society have done very little to support them and ensure their independence.”

Dumpsters in Spring Hill

The driver who picked up my construction dumpster today said PDQ has 32 dumpsters in Spring Hill where the builders have not paid rent and they will not be picked up until the rent is paid. He said all construction there has ground to a stop.

Brentwood's Whetstone falls in foreclosure

Tuesday, July 14, 2009, 7:00am CDT Modified: Tuesday, July 14, 2009, 7:22am
Brentwood's Whetstone falls in foreclosure

Nashville Business Journal - by Jenny Burns Staff Writer

A Brentwood housing development with million-dollar homes, Whetstone, is in foreclosure.
Developers say this is the first major development in Brentwood to go into foreclosure during the current recession, and the property owners had been trying to sell the project.

Developer Sedona Investments LLC bought the 157-acre property in August 2005 for $9.4 million. James Cross, who is listed as the developer of Whetstone who took out the loans, did not immediately return calls Monday.

Homes in Whetstone, which is located off Edmondson Pike in Brentwood, start at $900,000.
The 141-lot development was appointed to a successor trustee in June, according to Williamson County records.

The development was sold on the Williamson County courthouse steps on Thursday to Fifth Third Bank for $7 million, says Tony Marble, a real estate agent and builder who is selling a home in Whetstone and attended the courthouse sale Thursday.

The Whetstone foreclosure has not yet been recorded in county records.

Fifth Third was the property’s lender, making at least two loans to Sedona for $6.1 million and $4.5 million, according to Williamson County records.

Four homes have been built in Whetstone. One of them is occupied, and the remaining three are for sale, Marble says.

jburns@bizjournals.com 615-846-4276

Homes Sales Drop to 1993 Levels

The Greater Nashville Association of Realtors reports today that sales for all properties for January 2009 was 974. The number of single family homes at 821 has not been this low since January 1993 when the total single family home sales were 740. The 740 sales figure did not include Rutherford County which at the time had its own MLS.

Below is the full text of the release

MIDDLE TENNESSEE REAL ESTATE MARKET

FEELS IMPACT OF NATIONAL ECONOMIC TRENDS

There were 974 home closings reported for the month of January, according to figures provided by the Greater Nashville Association of Realtors®. This represents a decrease of 40.7 percent from the 1,644 closings reported for the same period last year. “The real estate market in Middle Tennessee is clearly feeling the effects of the national economy,” said GNAR President Mike Nichols . “This is the first time we have had fewer than one thousand closings in one month since February of 1994. The Greater Nashville area was slower to feel the full impact of the current national economic situation, and we are traditionally on the early side of recovery, but right now the market is slower than anyone wants it to be." "The standard formula items, such as interest rates and available inventory are all positive. However, when people don't have jobs, or don't have confidence that their jobs are reasonably secure, they are not likely to purchase homes or other significant items. Perhaps the passing of the stimulus package this week will initiate an increase in consumer confidence, but it is likely to take some time before the market really shows solid signs of recovery," Nichols said. "It does appear that rents have increased, so once people begin to feel confident again, it will make even more sense for them to consider the purchase of a home rather than continuing to rent." A comparison of sales by category for January is: Closings Residential Condominium Multi-family Farms/Land/Lots January 2008 1,644 1,364 188 24 68 January 2009 974 821 103 16 34 There were 1,282 sales pending at the end of the month, compared with 1,924 pending sales at this time last year. The average number of days on the market for a single-family home was 89 days. The median residential price for a single-family home during January was $165,000, and for a condominium it was also $165,000. This compares with last year’s median residential and condominium prices of $179,900 and $158,890, respectively. Inventory at the end of January was 22,509, up from 21,952 in January 2008. The current inventory of properties by category, compared to last year, is: A comparison of inventory by category for January is: Total Inventory Residential Condominium Multi-family Farms/Land/Lots January 2008 21,952 14,008 2,418 385 5,141 January 2009 22,509 13,551 2,358 320 6,280 “Inventory is actually down in every category but farm, land and lots,” said Nichols. “That is an indication that land available for development is not being purchased, as the need for new homes is limited in light of current available inventory and sales activity. There is a good selection of homes available and ready for those interested in buying now, or for when consumer confidence strengthens and sales activity increases."

New home sales fell to their lowest level since 1963

From John Cherry LANDAMERICA VALUATION CORPORATION 4300 Alexander Dr. # 200 Alpharetta, GA 30022 Toll Free: 800.207.7959 Fax: 770.777.6036 New home sales fell to their lowest level since 1963 in December continuing a downward trend that has been in place since mid-2005. Sales of new homes declined 14.7% last month to an annualized pace of 331,000. As weak as this sales pace is, it could be overstated because of the high number of contract cancellations that are not accounted for in the data. For all of 2008, sales have declined 44.8% and are now 76.2% below their peak reached in July 2005. Regionally, new home sales fell in all areas with the sharpest declines in the Northeast and West. The sluggish pace of new construction has kept inventories at a minimum with the inventory of new homes for sale down to 357,000 in December from 397,000 in November. However because of the greatly reduced pace of sales, the supply increased to 12.9 months from 12.5 previously. Prices also r emain on a downward slope with median prices dropping 9.3% to $206,500 over the last year and average sales prices decreasing 13.2% to $246,900. The downside surprise in new home sales seems to have caught many off-guard given the drop in mortgage interest rates and the rebound in existing home sales last month and the fact that the new home market just does not have that much further to fall. The outlook is not good either with new home sales expected to continue weakening until demand can be restored.

New orders for durable goods sank 2.6% in December more than an expected decline of 2.0%. Most major industry categories posted sharp declines last month except orders for electrical equipment. Spending on big ticket items and capital goods by consumers and businesses has fallen off sharply during the recession. The weakness in new orders portends of continued weakness in 2009.

Jobless claims increased 3k to 588k for the week ending January 24. Initial jobless claims remain elevated indicating a high pace of layoffs. Continuing jobless claims swelled by 159k to a record high of 4.776 million for the week ending January 17. The sharp gains in continuing claims show that people are remaining on unemployment benefits longer because hiring remains extremely weak. The insured jobless rate jumped to 3.6% its highest level since 1983.

Cooper Votes Against Stimulus

Jim Cooper was one of only 11 Democrats who voted against the $819 Billion Ecomonic Stimulus package. All the House Republicans toed the party line and voted against the package.

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/28/AR2009012800196.html

http://politics.nytimes.com/congress/votes/111/house/1/46