Real Estate

25 Aug, 2011

Cash is King for S.W. Fl. real estate

25 Aug, 2011

Low Appraisals Affect U.S. Housing

When Sean McGowan signed a contract to buy a New Jersey home in November, he didn't expect he'd still be living with his parents nearly a year later.

The deal fell through after two appraisals came in tens of thousands of dollars below the contract price, part of a wider trend of differences over property valuations that is compounding the U.S. housing crisis.

"It was very frustrating. We really wanted to move in," said McGowan, a 31-year-old real estate lawyer.

Many housing experts say low appraisals are yet another headwind for a housing market already suffering from a plunge in prices, high unemployment and tight credit.

Lenders are forced to cap their mortgage loans at the value set by appraisers and buyers and sellers often can't agree on how to make up the difference with an original deal price.

"It's hard to talk about any recovery of the housing market and home prices until the appraisal issue is squared away, and that is a broad issue," said Guy Cecala, publisher of Inside Mortgage Finance, a Maryland-based trade publication.

Sixteen percent of Realtors reported contract cancellations in July, matching June's level, which was the highest since March 2010, when the National Association of Realtors began collecting data.

Nine percent reported contract delays due to low appraisals, and 13 percent reported a contract was renegotiated to a lower price because an appraisal came in below the original price in the last three months, the NAR said.

Appraisers in the United States have long been used to controversy for their role in the country's housing market.

The appraisal system has been reformed in recent years to put a stop to the high estimates of property values that even appraisers admit helped inflate the housing bubble.

Many industry watchers argue the new regime has caused the pendulum to swing too far to the other side, inadvertently causing the opposite problem: artificially low appraisals.

"The industry, both from a lending perspective and appraising perspective, has gotten as outrageously conservative now as they were outrageously aggressive a few years ago," said Rick Sharga, senior vice president of data firm RealtyTrac.

APPRAISER PURSES PINCHED

In the run-up to the housing crisis, appraisers were accused of inflating home values to get work with realtors and mortgage brokers.

Mortgage finance agencies Freddie Mac and Fannie Mae have barred brokers and Realtors from any role in selecting appraisers since 2009. The Federal Housing Authority, which plays a key role in the U.S. housing market by insuring loans for low- and middle-income Americans, adopted a similar ban.

The three agencies together owned or insured around 90 percent of mortgages issued in the first half of the year.

As a result, 300 to 400 appraisal management companies (AMCs) have sprung up, mostly since 2009, to act as intermediaries between appraisers and lenders, according to the Appraisal Institute, an industry association.

AMCs hire contractors to provide 70 percent of residential appraisals, while the appraising arm of banks perform the rest, according to the same group.

Realtors and mortgage brokers, upset that their deals are often stymied by low valuations, say AMCs are to blame in large part for the conservative estimates. Some appraisers also resent the loss of high fees they used to receive.

"They are hiring these young guys and it's all based on price and not expertise," said Mike Evans, an appraiser and former president of the American Society of Appraisers, a trade organization.

"Some guy blows in from 300 miles away and grabs three comps that may not be in the right area, and leaves," he said, using the industry jargon for comparable sales that are used to evaluate a property's value.

Appraisers in Mexico, Britain and other countries are typically more educated than U.S. appraisers and work at small firms, according to David Bunton, President of the Appraisal Foundation.

AMCs and appraisal arms of banks take a cut of the appraisal fee which averages around $400, according to Evans. That leaves appraisers pushing for volume, not quality, he says.

"Because they don't want the scrutiny, they don't want to seem like they are going high, they just grab the three lowest sales" as comparables, said David Demuro, a residential appraiser in Florida.

Demuro mostly works for AMCs that pay at least $275 per job, but says some appraisal fees are as low as $150. Demuro averages 15 to 35 appraisals per month.

Industry insiders say fear among overworked appraisers of being sued if buyers default on properties they valued too highly, combined with anxiety about being blacklisted by banks and AMCs, keep them cautious.

Not all contract cancellations are linked to differences over appraisals. Tight lending rules that deny would-be house buyers a mortgage and inspections that reveal something wrong with the house are common causes too.

Federal agencies will not begin to regulate the companies until at least January 2013 under the Dodd-Frank Act though AMCs are already required to pay "reasonable and customary" fees to appraisers.

Dennis Blanton, a Coldwell Banker realtor in Myrtle Beach, South Carolina had a buyer agree to purchase a vacation home for $77,500, before the appraisal came in at $50,000.

"It takes the wind out of the sails of the buyer," said Blanton. He noted the appraiser used short sales -- whereby home-owners are forced to sell a home often at discounts of around 20 percent discount to normal sales -- for comparison. His buyer is no longer looking for homes in the area.

Others argue that the move to put AMCs at the heart of buying and selling homes has been healthy for the industry.

"Appraiser independence is a piece of the solution to the mess we are in right now," said Austin Christensen, president of AMCLINKS, a national appraisal company, who says appraisals were too high before AMCs were in the picture.

"Now that you have no pressure on appraisers to arrive at the appraisal, I think they are coming up with accurate values, more so than ever before."

Demuro agrees. He says that five or six years ago, if he couldn't bring in a high appraisal, the realtor or mortgage broker would not give him work again.

That doesn't happen any more, he says.

"I don't have the added stress of thinking about, 'I may lose this client. I may not be able to pay my bills next month because this appraisal is not going to come in and they're going to get upset'," he said.

08 Aug, 2011

Is now the time to buy a home?

The Miami Real Estate Club says that depends. Do you need a place to live? Is your job secure? Do you plan to stay in the area for several years? Do you have sterling credit, and enough money for a 20% down payment? Can you come up with a down payment and closing costs without having to take a major loss on your stock portfolio, or worse, raiding your 401(k)?

If the answer to all of these questions is yes, then yes—I think it would be a good investment.

In fact, this seems like an excellent time to buy in your area. Although single-family home prices in most parts are still soft, home prices in Austin are on the upswing: The average price rose 7.6%, to $263,149, in the second quarter of 2011 compared with the same quarter a year earlier, while the median price rose 3.4% to $196,700, according to the Texas Association of Realtors. (Bear in mind that price increases have been more dramatic in higher-priced homes than lower-priced ones, which is why average gains have been higher.)

Meanwhile, sales slowed 7.3% in the second quarter from a year earlier. Softer sales put you in a better position to negotiate as a buyer.

But don't expect to get too many concessions. Inventory levels are at a reasonable 6.9 month level, unchanged from a year ago. When inventory levels range between 5 and 7 months, that's generally considered a sign of a balanced market, with neither sellers nor buyers in charge. Months of inventory are determined by dividing the current number of active listings by the number of sales going back 30 days.

Austin has other positive signs, especially compared to the rest of the country. According to a first quarter analysis of the market by the National Association of Realtors, housing equity grew in Austin even as it has declined in the nation overall. Local employment growth was strong compared to other markets, and the unemployment rate was two percentage points below the national average. Foreclosures were also lower than the national average.

Another plus: As in most parts of the country, single-family permits have fallen. In Austin, single-family home permits fell almost 4% in the first half of the year from a year earlier, according to data from the Real Estate Center at Texas A&M University. That means less competition from newer homes should you decide to sell down the road.

Meanwhile, mortgage rates remain amazingly low. While the stock market plunged more than 500 points yesterday, fixed rates for 30-year mortgages dropped to their lowest levels in eight months, while 15-year loans fell to record lows, according to Freddie Mac. The declines are directly related to the falling yields of 10-year Treasury notes, which have been slipping lately as concern has grown that our economy is slowing. These low rates may last a while longer in the wake of fears of a double-dip recession—but don't expect them to last forever.

02 Aug, 2011

Over 1,000,000 foreclosures delayed till 2012

 The Miami Real Estate Club read that an estimated 1 million foreclosure-related notices for defaults, auctions, and home repossessions that should be filed by lenders this year will be pushed back until next year, according to the latest report by RealtyTrac.

While the delays could give home owners more time to catch up on their payments and try to avoid foreclosure, housing experts warn this means the looming shadow inventory of distressed properties likely will continue to plague the real estate market even longer.

"The best-case scenario is we don't get back to normal levels of foreclosure activity until 2015, which means the housing market recovery gets delayed by at least a year," says Rick Sharga, a senior vice president at RealtyTrac.

Foreclosure Notices Drop, Threat Still Looms
Overall, the number of homes repossessed by lenders in the first half of this year dropped 30 percent compared to the same period in 2010. But foreclosure processing delays — with lenders taking longer to take action against delinquent borrowers — is stalling the housing recovery, experts note.

About 1.2 million homes received a foreclosure-related notice in the first six months of this year — in other words, one in every 111 U.S. households, RealtyTrac reports.

Nevada continues to face the most foreclosures; one in every 21 households in that state received a foreclosure notice in the first half of the year.

The foreclosure process continues to lengthen too. From April and June, homes took 318 days on average to go from the first stage of foreclosure to ultimately where it was repossessed by the lender — that’s up from 298 days in the first three months of the year. (In New York, the foreclosure process took the longest at an average of 966 days or 2.6 years; Texas boasted the shortest at 92 days.)