Rod's Blog

It's been remarkably busy in the appraisal business for late   December. My workday is compressed due to short daylight hours and the holidays are shortening the next two work weeks to about 6 or 7 days instead of 10 so things are backing up a bit. Most of my work is generated by refi and home equity lending. Appraisals on new purchases are a distant 3rd.

What about prices? Based on general observations and not a statistical analysis, it appears that most segments of the market are holding pretty steady and some even show a modest uptick in values. But the "high end" seems to be struggling to hold up to values from 2. 3 and even 4 years ago. This seems to be a function of reduced demand and I've noticed it more in the past 3 or 4 months than before.

Overall, that's not so bad a postition when compared to many markets which remain completely under water with little sign of recovery in the foreseeable future. 

What does the near future hold? Who knows... we are in uncharted territory with historic low interest rates, unprecidented goverment give-aways to homebuyers and high unemployement.

Still, the past year has been a series of surprises, mostly pleasant, with regard to my market area.

But my crystal ball remains cloudy as ever...    

In my Novermber 28 2008 blog post entitled "FHA- Heading for Trouble?", I opined that FHA seemed to be repeating sub-prime mortgage mistakes and could become the next fiscal black hole. 

No doubt now, FHA is in trouble. While the commissioner of FHA says no tax payer money will be needed for a bailout, others disagree. The NY Times reports the following (emphasis added by me):

" “It appears destined for a taxpayer bailout in the next 24 to 36 months,” the former Fannie Mae executive, Edward Pinto, said in testimony prepared for the hearing. Mr. Pinto, who was the chief credit officer from 1987 to 1989 for Fannie Mae, predicted losses on its mortgage insurance would more than wipe out the agency’s reserves.

Much is at stake. In addition, principal and interest on mortgage-backed securities containing F.H.A.-insured loans are guaranteed through the Government National Mortgage Association, known as Ginnie Mae. That means the taxpayer is responsible if the mortgages underlying those securities fail." "

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So, who do I believe... the FHA commissioner who says no bailout will be needed, or the other who says taxpayers will likely be on the hook to save another mismanaged government agency?

Easy pick. Hold on to you wallet if you can..

For the complete story, follow the link.

http://dealbook.blogs.nytimes.com/2009/10/08/is-fha-the-next-shoe-to-drop/

This is a partial update on market conditions here. 

An official from the Chautauqua County Board of Realtors was quoted in a recent Dunkirk Observer article. She says there has been a recent uptick in single family houses sold, year over year.

http://www.observertoday.com/page/content.detail/id/530050.html?nav=5047

Today I compiled a quick market report on 2008 vs 2009 using sales in Fredonia. I found increasing average values ($121,800 vs $138,800) slightly longer days-on-market (120 vs 147) with about 28 fewer sales (89 vs 21). The median price is, however, identical for each of these 12 months periods at $115,000. These stats were derived from the Chautauqua County MLS and include only brokered sales within the Fredonia School districts; sold FSBOs do not show up in these reports.

In general, the market appears to remain flat overall. With any luck, the impact of the first time home buyer program will be easier to figure out after it expires and the dust settles.

The surge in home sales appears to be feuled by first time home buyer tax credits which are set to expire at the end of this year. The Buffalo Niagara Board of Realtors reports a 15 year record for home sales. Prices are up too, according to the same source. Deadlines to qualify for the tax credit are... sign a contract of sale by the end of September 09 and close the sale by the end of November 09.

Should we celebrate?

Well, if you're a tax payer and not a first time buyer and if you're happy to be paying for the tax credit then by all means, have a party. Actually, it could be your yet-to-be-born grandchildren who are paying for this program. Either way, this surge could poop out after the credits expire. When the dust settles, it will be interesting to find out if values are up in an amount roughly equal to the tax credit, particularly in market segments which appeal to first time buyers. If that happens to be the case, then the increases in values could be judged to be artificial.  

What about Chautauqua County? I just ran a quick report, year to date (12 months ending 8/23/08 vs 8/23/09) using stats for single family sales in the Chautauqua County MLS. Here's what I found-                   

     8/23/08            vs        8/23/09

Avg List price         $120,800                                $124,232

Avg Closing Price    $111,493                                 $114,320

Median Clsng Price  $76,500                                   $74,521

Avg Days On Mkt      124                                           128              

Total listings            1447                                       1371  

Total Sales               894                                          706

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Summary- In 2009 we have slightly higher average sale prices, slightly lower median sale prices, similar days-on-market, fewer listings & fewer units sold.

Seems flat to me... But flat isn't so bad when much of nation is still reeling from a breathtaking drop in values. 

My market area is generally holding steady in terms of re sale values of existing homes but sales activity has slowed somewhat. I talk regularly to the folks at the county seat and they have a pretty good feel for market activity based on the number of deeds that are getting recorded. They tell me there is a seasonal "uptick" in transfer activity right now but over all it's not really that busy county wide. Some brokers & agents tell me that the economic stimulus incentives for first time buyers are driving some formerly indecisive folks to making a purchase decision.  My guess is that this will impact the mid to lower price ranges the most since these market segments are usually most appealing to first time buyers. Brokers and agents are also telling me that this is no time to be padding asking prices; formerly hot markets of a couple years ago have cooled with longer marketing times and flat values. Brokers tell me that realistic prices are the best first step to selling in a reasonable time frame. Refinance activity is still brisk due to low interest rates but a very recent increase in mortgage rates could ice things a bit for refi's and for sales activity... we'll see... stay tuned. 

I had a gut hunch about subprime lenders and mortgage brokers many years ago. That hunch turned to disdain once I figured out and even saw first hand what these bandits were up to. Having done a few appraisals for subprime loans  -and regretting it-  I soon leared to refuse appraisal work from known (or strongly suspected) subprime players. I had earned the reputation among these vermin as being "not lender friendly". That's code for "Pennica won't give us the numbers we need to collect our commisions by making unbelievably risky loans which will create the toxic assets that will someday help sink the world economy". Having been labeled "not lender friendly" by the poster children for our current economic woes, I now happily wear that tag as a badge of honor. 

In the aftermath of the subprime fiasco, I'm getting the same gut feeling about the FHA. FHA loans are mortgage loans made by approved lenders which are insured by FHA. The are insured because they are usually riskier than conventional loans. They are characterized by very low down payments and relaxed standards aimed at helping lower income borrowers. Hmmm... this sounds a lot like.... say it with me... SUBPRIME... and they are being promoted by many of the same players that put the phrase "toxic assets" in our daily lexicon.

A recent article in Business Week magazine validates my hunch. Follow the link and you'll read, among other scarey things, about a bankrupt subprime lender who re-tooled and is now making thousands of of FHA loans. Unbelievably, this lender has one of the highest default rates of all FHA lenders in the country!

It looks like the wolves who ravaged the mortgage industry are now raiding the FHA henhouse. And who owns FHA? Just in case you don't know, the "F" stands for Federal...and thats me & you. If/when FHA implodes, guess who will be asked to bail it out? That is, if there's any money left for any new bailouts. 

I am certified to do FHA appraisals... in fact my earliest work as an independent fee appraiser was as an FHA appraiser during a refinance boom during the 1980's...but I haven't done an FHA appraisal in several years. This is because my regular clients who keep me plenty busy making sensible, responsible conventional mortgage loans are not FHA lenders.

If I get any future requests to do FHA work, I'll be asking a lot of questions before I accept an assigment.

Please follow the Business Week link above for a quick and revealing read on the subject.

OBVIOUS DISCLAIMER: Of course, not EVERY mortgage broker is a bandit or vermin. Honestly, though, I am convinced that the vast, vast majority really are. And of course, as we drain the sub prime swamp, we'll find a whole lot of complicit appraisers along side of these bad guys. They simply couldn't have succeeded without appraisers who were willing to play their game.

What follows is from the gut rather than hard stats.

I sense some restraint in the local residential real estate market during the past few weeks. This is the result, in my opinion, of the constant drumbeat of bad news and uncertainty that have become inescapable. We have a national real estate market in a world of trouble...banks (BIG banks) closing... FANNIE/FREDDIE with cooked books leading to an unimaginable drop in value....breathtaking drops in the stock market followed by white knuckle volatility...a presidential campaign & election with promises from both sides to "fix" these problems...and this week, the highest unemployment rate in 14 years.

Yet here in Fredonia and the rest of my market area, I sense only modest restraint...not a collapse, not a bursting bubble with tumbling values (we really had no bubble to burst). It is a little hard to factor out the typical seasonal slow down which usually occurs this time of year. But there are no rash of foreclosures leading to an oversupply of houses, no grinding halt to lending. The lenders I work with are still lending much as they always have...actively and responsibly.

Who knows what's around the corner? I sure don't... but thus far, our market continues to be what I would characterize as stable. And that is, relatively speaking, a really good thing.

A qualified “Not so bad, thank you”. 

While much of the national real estate scene has been experiencing an oversupply of houses and tumbling prices, the southern tier of Western NY State is having no such troubles. That bursting bubble that iced so many former hot markets just didn't occur here. Out values, overall have remained stable, and in some cases, values are increasing modestly.

But let's not be too smug about our steady and stable market.  The truth is, in some markets that went up, say, 100%, and then dropped 20%, property owners were still way ahead of us in terms of equity gains. Here's an example of the “bubble market” math: over a period of 4 years, a $100,000 property increases to $200,000, and then drops 20% in one year (a $40,000 decline) to a current “depressed” value of $160,000. This is a still a gain of 60% over 5 years. This increase in values might have occurred over a period where our values might have gone up 10, 20 or 30%. Plot our values and theirs on a graph over a long time horizon and you'll probably see that most of the "bubble market" property owners are way ahead of us Western New Yorkers in equity gain.

The evening news highlights those unfortunate folks who are getting clobbered because they bought at peak market, then were compelled to sell for any number of reasons (divorce, job loss, job transfer, etc) during a declining market. 

I think we Western New Yorkers will continue our steady sales and stable to modestly increasing values.

Still, I am convinced that many of the high profile "bubble markets" (like California and Nevada) will stabilize soon and will ultimately resume the trend of strong appreciation in values that far exceeds the pace of appreciation here in Western NY State.