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Federal home-price trackers have finally rebuilt a tool to their workbench — an new index that raises as many questions as it answers.
The Federal Housing Finance Authority — the regulator of Fannie Mae, Freddie Mac and Federal Home Loan Banks previously known as “OFHEO” — has updated its home-price index to include tracking local prices by both its traditional-yet-unorthodox mix of sales data and appraisal valuations from refinancings and its newly minted “purchase only” methodology.
These indexes draw their data from the mortgages bought, sold or held by Fannie and Freddie — and, thus, show what’s going in in more “affordable” communities where the smaller loans that these agencies buy are widely used. Some critics have argued that the long-running inclusion of appraisals in the math — that is, the human guesstimate from the appraiser vs. the economic pureness of a price in sales transaction — was skewing the results.
Well, those critics may have been proven correct. But what the skew means, is up for discussion.
In Orange County, from 1992 to 2009’s 1st quarter, the traditional index (appraisals/purchases) shows local home values increasing at an annual average rate of 5.2%. That’s slightly higher than the 5% average annual gain found by the “purchase only” math. One could say that makes some sense as homes that are being refinanced tend to be better performing and owned by better financed owners who may be better at upkeep, too.
But take a look at how the various ebbs and flows — especially in the accompanying chart! …
- From 1992 to 1996, the end of the last great real estate debacle, the addition of the human eye — in the form of the purchase/appraisal index — resulted in lower average losses: 3.7% vs. 4.1% for the purchase only index.
- As the recovery bubbled up, from 1997 to 2002, the human eye found lower gains. The purchase/appraisal index found average price hikes of 8.7% vs. 10.1% from the purchase-only index.
- As the boom glowed red hot, the human eye saw more gold. The appraisal/purchase index rose 18% a year on average vs. 16.9% for the purchase only marker.
- Since 2006 — the grand collapse — the human eye has seen slightly less devastation. The appraisal/purchase index found annualized average losses of 10.9% vs. 11.9% for the purchase only index.
Pondering these patterns, I’m guessing …
- Appraisers are a bit slow to catch on to trends. That’s probably what you want them to do.
- Appraisers were late to see the boom starting in the late 1990s. Healthy skepticism.
- Then, as the boom approached the peak, appraisers were slow to see warning signs — likely under some pressures from borrowers and lenders, both blinded by previous profits, who doubted the third-party skepticism.
- And, finally, the appraisers haven’t yet kept up with the price declines as foreclosure-fed discounting makes valuations tricky.
I’m not blaming appraisers here. Being wary of trends — good or bad — is often a desirable trait.
Other pricing news …
SAY IT AINT SO .. . .. .
Fraud in Real Estate, Mortgages……NAR, NAMB, outed . . .. will fight against needed appraisal reform.
“friendly” i.e., “corruptible” appraisals
So the people who helped create the credit bubble, and fed the housing boom and bust via friendly (i.e., corrupt) appraisals, are now mobilizing to make sure that appraisal reform is thwarted.
“The NAR and NAMB have the ethics of Taiwanese pimps selling 10 year olds girls to the sex tourist trade. To say these shameless whores disgust me is to understate the issue”
LOLLLLLLLLLLLLLLLLLLLLLLL
http://www.ritholtz.com/blog/2009/06/nar-namb-fighting-appraisal-reform/
Looks like their little insulated, ‘rigged’ system of modus operandi is beginning an implosion of its own. Too bad. You all had a great run but that dog don’t hunt no more.
This story further confirms what I’ve known since this ponzi scheme started.
Your home IS NOT worth what a buyer is willing to pay, IT IS worth what a lender is willing to loan a buyer to pay. Think about that.
oh, oh, no more green shoots
No more “green shoots” for new home sales?
Let me see, should I believe Warren Buffett or Dealeo when it comes to the state of the economy?
http://www.cnbc.com/id/31526130
“Buffett also noted that he had a cataract operation on his left eye about a month ago. He joked that he thought it might help him see “green shoots” for the economy, but so far he hasn’t seen any hopeful signs.”
Maybe some of these RE salesmen can show him where there green shoot are. I’m sure our RE salesmen on this board know better than Warren Buffett.
Quite true, and all an appraisal is, is what other lenders willing to lend on it. This is what it is supposed to be.
It seems to me that we need to reform the utterly corrupt monopoly the National Association of Realtors has over the buying and selling of homes.
Real estate is the number one investment vehicle for most homeowners, and yet has incredibly few controls in place to protect the homeowner from realtors who consistently manipulate market information, and/or fail to disclose conditions which in any other industry would result in enormous lawsuits.
They can only get away with their massive organized fraud that is constantly perpetuated on unsuspecting homeowners because of how organized they are, and because of how they behave as wolves in sheep’s clothing.
They are paid a ridiculously high fee to do relatively little work.
The entirety of the organization needs to be abolished.
My two cents.
Appraisers work from comps. That is a flawed system from the start; it will always ride up and down with bubbles and busts.
then there this
http://www.cnbc.com/id/31509964
pesky housing values, if only the banks were still willing to lend….. and agree to average houses at 10 X an areas median income….
the banks should just lend and not worry about the inevitable future declines….. come on banks, roll the dice lllooolll
then there this
Home Prices Could Fall for 5 Years
http://money.aol.com/article/home-prices-could-fall-for-5-years/534493?ref=patrick.net
Oh Billy Boy,
Your precious survey of mortgage applications didn’t quite go as planned this week:
http://mortgage.freedomblogging.com/2009/06/24/mortgage-applications-rose-on-dip-in-rates/12617/#comment-31145
“The Mortgage Bankers Association today said its index of mortgage application volume rose 6% last week vs. two weeks ago and 17.2% vs. the same period a year ago.”
To say they are more culpable is a bit simplistic because:
1. Mortgage Co. says to appraiser,”Either you give me the value I want or I find somebody else.”
2. Everybody was doing it mentality, so unless you want to cede business to the competition, you have to join the herd.
3. Banks EXPECTED housing to go up, because securitization of subprime required flipping to avoid defaults.
Yes, appraisers were an essential cog in the machine, but they were but a part of this machine, not the machine itself.
Yes. OCTrojan. Same excuses the German used during Hilter’s time on what they did to the Jew, and same excuses the Japanese used on what they did to the Chinese; they were just ‘following’ orders!!! Why didn’t these appraisers report these kinds of behaviors the Mortgage Co. are doing to the CA Housing Authority?
The answer? Greed!!!!
If appraisers were able to predict the real estate market, then it would stand to reason that they could make a lot of money investing in real estate. I don’t know any wealthy appraisers.
The economic reset continues … .
California incomes decline — again
http://economy.freedomblogging.com/2009/06/24/california-incomes-decline-again/
Any wealthy people on this blog? I didnt think so. Where are they?
Laughing at you guys spreading the blame on each other.
Laughing at you guys fighting for the bits they left for you.
Laughing at you guys trying to find a life.
It depends on what you mean by wealthy. I’m wealthy…spiritually. God’s in my heart and he can be in yours, too. All you have to do is invite him. He’s like a vampire. All I’m saying is the dude’s got rules.
I stole that from Daniel Tosh, but it just fit so well here I had to do it.
i have zero debt, and piles of cash…..and a very healthy income….
i’m not sure if this qualifies me as wealthy…..
as the american culture has lost sight of what true wealth is….
….. however i am sure it is not the right time to buy OC real estate…
mav,
Do you believe your situation is unusual though? I don’t. There are plenty of people that don’t leverage up their lifestyles in OC, but they don’t get the attention that poseurs and players get. In a sense, you’re validating the bulls’ argument that OC has plenty of money and pent up demand, because most people in your situation are not content to be renters.
They all think they’re “special”.
I’m in a similar situation, although I do own a home and have a mortgage and I have just 1 big pile of cash. It’s easier for me to keep track of that way :) I’m sure the renters will call me a homedebtor, but I bought in ‘97 so I’m sure my mortgage is quite a bit lower than their rent is.
I’m sure there is some pent up demand, but how much of the over $500k would normally be move-up buyers? Since most of the sales that are happening now are REO and short sales, where would the move up buyers come from? Maybe that’s why they’re not moving?
I don’t think there are a lot of renters that save up enough to put 20% down on a $500k+ house. They save up enough to qualify for FHA and then buy a starter home, which is what they’re doing now. The problem is there either is no move up buyer because it’s an REO or it’s a short sale and there’s no equity to be a move up buyer and they become renters.
So, either prices will come down so that people can save up enough to put 20% down on a mid-level home or they’ll have to come up with more “creative” financing options. 60 year mortgages anyone? :)
less than 5% of the OC population makes over $200K a year, and less than 8% makes over $150K a year…. then you need to subtract those who equated debt with wealth…..so yes… there really aren’t that many people available….
mav,
Where did you get the statistics on OC income?
I have to believe John is a smart person and that is why I have to believe that the headline was meant to be dripping with sarcasm. Appraisers wittingly helped to inflate the value of properties. They were not the only player but they were a factor.
Maybe tomorrow the headline should be:
Did real estate agents cause the price run-up?
or
Did mortgage brokers cause the price run-up?
sorry, wealthy was a poor choice of words, “not broke” would be better.
warren buffets wealthy- his berkshire stock got hammered like
a nail last year- he says- unequivocably- the economy is in
shambles and will be for quite some time- now please explain
to me again how the housing market is at a bottom— welllllllllll
http://www.cnbc.com/id/31526130
I’m anticipating a flurry of name changes here, anyday now, by the green-shoot few who are on the wrong side of the trade.
Can’t wait to see what ‘noobs’ will show up lollll
come to think of it, I don’t know any “know it all’s” that are wealthy either.
lol.. where are all the wealthy people? I always think that when i see prices plummeting into the abyss.
Wealth is relative, if you have nothing, but everyone around you has nothing, and a huge upside down mortgage, then you are wealthy.
Yeah the common theme here is the bears have a pile of cash and no debt but everyone else in the real world is broke. yeah right
So, if someone sees the housing market as a poor investment, they are automatically a “bear”? It couldn’t just be that they see a rapidly deflating asset bubble and have better investment options?
Tank: Don’t sweat it. Those claiming to be bullish on local RE haven’t bought property in the last two years at least.
I’m bearish on local RE if I had to use financing and not get the steep disocunt by purchasing direct from lender - but this takes real work
Go figure - nobody ever said the idiots here were logical
As for shockg - he’s been dealing with his fears - I can tell he’s improved dramatically. I bet he’s actually getting some sleep nowadays.