Matrix Blog

Over the past few days I’ve been sent this blog post by a number of real estate appraisers who are upset with its derogatory reference to our profession. It was written by Dean Graziosi in the Huffington Post guest blogger section. I’ve never heard of him but perhaps that’s because I’m not a real estate agent. If you insert the word “scam” in your google search, there are a lot of additional insights that come up.

His Huffpost bio and web site indicates he is a NY Times Best Selling Author along with one of the top personal motivation and real estate trainers in the world. I also learned from his bio that he is a multi-millionaire, a guru in the personal motivation sector and cares deeply about his students. Translation: He basically teaches real estate agents how to sell.

Good. While it’s not my thing, I’m happy for Dean’s success (notice how his watch is strategically placed within his Facebook head shot as an indirect confirmation of his success) assuming no one was hurt. However as a public figure (as indicated on his Facebook page with 340K+ likes), Dean has a responsibility to convey information accurately to his students if he does indeed care.

While I doubt he wrote it it personally, his brand handlers managed to mischaracterize two key issues in a small blog post on HuffPost:

1. Graziosi frames the current housing market as equal to the bubble’s peak but doesn’t accurately describe what that means.
2. Graziosi frames the real estate appraiser as something other than a real estate professional while the real estate agent is a professional.
   
   

1. Housing Market

Graziosi cites the FHFA trend line as breaking even with the 2006 peak. Yes, based on FHFA methodology that’s certainly true and taken directly from the most recent FHFA report. I do feel the need to split hairs here since his “brushstroke style” of simplifying everything misaligns with reality. He says:

First, and most important, it requires repeat sales of homes, so if there aren’t huge numbers of sales, then we’re looking at a number derived from a small set of sales data. So, we’re not necessarily seeing an excited bunch of buyers flocking to the market. We are seeing a whole lot of homeowners who aren’t selling, waiting for rising values. So, we have a small inventory and competition for it.

The problem here is that there are a lot of sales outside of FHFA data – and FHFA only tracks mortgages that go through Fannie and Freddie. Roughly 30% of home sales are cash and another 5-10% of them are jumbo loans, too large to be purchased by the former GSEs – so they don’t get included. FHFA also excludes new construction.

The Case Shiller index is also a repeat sales index like FHFA but shows a different price point for the current market because it includes transactions outside of the GSE world.

If we look at the number of sales, which is the key point he makes, sales activity is low because we’re not necessarily seeing an excited bunch of buyers flocking to the market. But in reality, home sales are not low and they have been rising for 4 years. Of course sales are not at pre-crash highs because those highs were created largely by fraudulent lending practices including the unethical behavior of consumers caught up in the systemic breakdown that included nearly all particpants in the mortgage process.

Graziosi is right that inventory is low, but not because buyers aren’t flocking to the market – many buyers are being held back credit access has over-corrected. Many homeowners can’t qualify for the next purchase so there is no point of listing their home for sale.

Conclusion – we are not at the pre-Lehman market peak unless you only look through the eyes off FHFA, a distorted subset of the overall housing market. I would think that real estate gurus understand this.

2. Appraisal Industry

Let’s move on to the real reason I am writing this post.

I can ignore Graziosi’s “lite” market commentary but I can’t ignore his misunderstanding of the appraiser’s role in the purchase mortgage process (buyers applying for a mortgage to purchase a home.)

Don’t call an appraiser, as their approach to market value is different than that of a real estate professional. The real estate agent is trying to get you a sold price near to the top of the market, and their CMA, Comparative Market Analysis, is going to give you a pretty good idea of its value.

There is so much to talk about within these two sentences I’m not sure where to begin. It’s mindbogglingly simplistic, misleading and uninformed. Perhaps this is how he makes his students motivated?

Lets go for the big point first:

“Don’t call an appraiser, as their approach to market value is different than that of a real estate professional.” He must be thinking along the lines of the IRS definition, which is

To meet the IRS requirements, you need two things: spend the majority of your working time spent performing qualified real estate activities (regardless of what you do), and rack up at least 750 hours. Qualified activities include “develop, redevelop, construct, reconstruct, acquire, convert, rent, operate, manage, lease or sell” real estate.

Nary an appraisal-related definition within that list.

The problem with Graziosi’s communication skills as a best selling author and nationally renowned real estate guru who gives seminars for a living to communicate to his students (agents) how to succeed is – if we (appraisers) are not “real estate professionals” then it is a hop, skip and a jump to suggest we are “unprofessional” as if appraisers are something less than a real estate agent. Ask any consumer if they hold real estate agents in higher regard than real estate appraisers? In my view both industries don’t have sterling legacies but one isn’t more professional than another. Remember that he is used to speaking to his students who are real estate agents, the kind that sign up for this type of course. Promote BPOs and help agents get more listings – has got to be his recurring mantra.

The second issue with his quote concerning an appraiser’s value opinions – “their approach to market value is different” than a real estate agent. Providing an opinion of market value is likely the intention of both. Most real estate agents are hoping to get the listing and the appraiser is not incentivized by the home’s future sale. The agent may be the most knowledgeable person in the local market but there is an inherent potential conflict. Graziosi suggests that the broker will give you a price you want to hear. However I do like his idea of getting three broker opinions – that’s a very common practice – nothing new there. Ironically both an agent and an appraiser are looking at closed sales, contracts and listings but the appraiser doesn’t have an inherent conflict. They aren’t going to get the listing no matter how accurate their value opinion proves to be.

One problem with today’s appraiser stereotype as this column brings out indirectly, is that bank appraisers now generally work for appraisal management companies (probably about 90%) and the best appraisers tend to avoid or perform minimal AMC work because they can’t work for half the market rate. As a result, good appraisers aren’t necessarily known as well by the brokerage community as in years passed unless they get in front of the brokerage community in other ways, like giving seminars, public speaking, etc. Competent brokers within a market will know who the competent appraisers are.

There are unprofessional professionals in every industry – doctors, lawyers, deepwater diving arc welders and farmers, so please don’t make sweeping pronouncements to the contrary – especially if you are in the business of communicating information to “real estate professionals”.

Conclusions

• The real estate appraisal industry is not unprofessional
• IRS definition aside, real estate appraisers are real estate professionals

As I’ve walked through this response, I realized that the silly advice blog post in the Huffington Post by an infomercial guy did what it intended, stir up conversations of any type to get his name out there when his actual content was devoid of useful information. There is a great post I stumbled on the industry of motivational speakers: Real Estate B.S. Artist Detection Checklist. Worth a read.

Looks like I’m never going to be a multi-millionaire wearing a huge watch strategically placed in my head shot. If you notice my own head shot in the righthand column, my watch is very small.

Sigh.

UPDATE From the I have no idea for whom the appraisal is being performed but I am a 20+ year real estate professional (see definition above) department: Here’s an article from the Santa Fe New Mexican “Be cautious of appraisals” that damns appraisers using a stunning lack of understanding of the appraiser’s role in the mortgage process given his experience. This piece was written by a mortgage broker who was also a former financial consultant and real estate agent. The author states:

Everyone in every business falls under some measure of accountability. Certainly appraisers must also be accountable to their customer. The customer is the homeowner, not the AMC.

No it isn’t.

The appraiser’s client in the mortgage appraisal situation you describe is not the homeowner. The AMC is acting as an agent for the lender in order to for the lender to make an informed decision on the collateral (of course that’s only a concept). The appraiser is working for the AMC (who works for the lender) and not for your homeowner. Your logic from the housing bubble still sits with you today.

Yes I agree that the quality of AMC appraisals for banks generally stinks, but blame the banks for that, not the appraisers. Quality issues don’t change who the appraiser is working for. AMCs do internal reviews and make ‘good’ appraiser’s lives a living hell for half the prevailing market rate loaded with silly review questions by 19 year olds chewing gum to justify their own institution’s reason for existence. No wonder you are frustrated with appraisers from AMCs. ‘Good’ appraisal firms like mine avoid working for AMCs whenever possible. Yes I would be frustrated as a mortgage broker today because your industry got used to using appraisers as “deal enablers” during the bubble and nothing more. I contend that the current mortgage process post-Dodd Frank is clearly terrible and AMCs are a big part of the problem.

ASIDE This new era of online journalism for print stalwarts like the “Santa Fe New Mexican” and new versions like the “HuffPost” rely on filler-like the above 2 articles discussed here. Very sad.

Tags: Appraisal Management Companies, Huffington Post, AMC, Dean Graziosi, motivation, guru, real estate professional, seminars, scam, motivational speaker, Santa Fe New Mexican, mortgage broker, financial planner

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After all the housing news drama of the past month, I thought it was interesting to see the negative streak broken. Still, sales are below year ago levels after what I described as a “release of pent-up demand” that was caused by the expiration of the “fiscal cliff” and the looming rise in mortgage rates last year.

Although home sales are expected to trend up over the course of the year and into 2015, this year began on a weak note and total sales are unlikely to match the 2013 level.

All the indices NAR publishes bother me because they include seasonal adjustments and those adjustments can be very severe. The chart above has no seasonal adjustments so you can see how much adjusting has to take place to smooth out the line. I thought I’d take a look at the month-over-month data that wasn’t seasonally adjusted to see if the same pattern occurred.

Yes, month-over-month pending sales rose the most since 2010 when the market was wildly skewed (higher) as a result of the First-Time Homebuyer Credit (federal first time buyer and homeowner tax credit).

February to March 2014 had the largest increase in contracts than the same period in each year since 2010.

Tags: PHSI, Pending, Signed Conracts, Written Business, NAR, National Association of Realtors

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Back in mid 1980’s the front door of a new condo conversion at One Tompkins Square Park was spray painted with words “Die Yuppie Scum” and it became the battle cry for protests against gentrification of the East Village. With the eastward push of new residential development in the 1980s from the West and Central Village, residents and local businesses worried about being priced out and losing the intangibles that made the neighborhood unique – and that they would disappear along with it.

I remember appraising apartments to the east of Tompkins Square Park, seeing squatters inhabit derelict buildings, observing a burned out school bus on blocks in front of a newly converted walk-up and the self-described “Anarchists” in the park. All that is gone.

Recent discussions about gentrification have been more visible of late – and so have the discussions of the benefits of gentrification.

Merriam-Webster defines gentrification as:

the process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas that often displaces poorer residents

Philadelphia is one of the first cities to tackle the issue in an attempt to keep the long time residents there and in doing so, helping to minimize the loss of the character of the neighborhood. It is fascinating and encouraging to see city governments be proactive on the issue since it costs money in the short term.

The initiatives, planned or underway in Boston, Philadelphia, Washington, Pittsburgh and other cities, are centered on reducing or freezing property taxes for such homeowners in an effort to promote neighborhood stability, preserve character and provide a dividend of sorts to those who have stayed through years of high crime, population loss and declining property values, officials say.

Tags: Gentrification, East Village, Tompkins Square Park, One Tompkins Square, Die Yuppie Scum, Spike Lee, Merriam-Webster

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It’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capital of the world…and I’m here to take measurements.

Check out my 3CW column on @CurbedNY:

In this week’s column, I thought I’d look at something near and dear to our economic hearts: tracking rental versus mortgage payments in Manhattan. Above, you’ll find Manhattan’s median sales price for co-ops and condos, as well as median rental prices, plotted against a theoretical monthly mortgage payment. At first I was using this to present the rent-or-buy decision, but the visual became a little more than that.

For the mortgage payment estimation, I used generic defaults of 20 percent down and 30-year fixed Freddie Mac mortgage rates using median sales prices as the anchor—understanding that a 20 percent down payment has not been a constant over the past 20 years. Although I’m only tracking principal and interest on the payment, I’m not factoring in the tax deduction either, so the offset is somewhat reasonable in this simple visual. Here’s what I found:…

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My latest Three Cents Worth column on Curbed: Looking At Manhattan’s Mortgage History [Curbed]

Three Cents Worth Archive Curbed NY
Three Cents Worth Archive Curbed DC
Three Cents Worth Archive Curbed Miami
Three Cents Worth Archive Curbed Hamptons

Tags: Three Cents Worth, Curbed NY, Rent versus Buy, 3CW, Freddie Mac

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[click to open reports]

We recently released the market reports we prepare for Douglas Elliman covering the The Hamptons and North Fork.

This is part of an evolving market report series I’ve been writing for Douglas Elliman since 1994.

Key Points

HAMPTONS 1Q 2013

• Listing inventory continued to fall.
  
• Number of sales surged.
  
• Number of sales in excess of $5M dropped as many high end buyers rushed to close at the end of 2012.
  
• Limited supply beginning to apply upward pressure to stable markets.
  
• Credit remains tight, restraining supply from entering market, no urgency to list.
  
• Record low mortgage rates and release of pent-up demand keeping demand strong.
  
• Less high end sales as tax-incentivized buyers rushed to close at the end of 2012.
  
  

NORTH FORK 1Q 2013

• Housing prices up in all segments except for top quintile due to tax-incentivized rush at end of 2012.
  
• Number of sales fell and listings rose.
  
• Days on market expanded.
  
  

Here’s an excerpt from the 1Q 2013 report:

HAMPTONS…After an unprecedented year end surge in high end closings motivated by tax planning purposes, the first quarter Hamptons housing market saw an unusually low level of high end sales despite a year-over-year increase in total sales. As a result, the price indicators reflected declines, when in fact the housing market was not experiencing falling prices…

NORTH FORK…Sales activity in the first quarter of the North Fork housing market was somewhat weaker than the same period a year ago as the prior quarter “poached” some activity at the close of 2012. Price indicators were generally higher, but sales were lower and inventory was above prior year levels…

You can build your own custom data tables on the market – now updated with 1Q 13. While we haven’t built separate chart galleries for each market yet, you can browse our chart library.

The Elliman Report: 1Q 2013 Hamptons Sales [Miller Samuel]
The Elliman Report: 1Q 2013 North Fork Sales [Miller Samuel]
The Elliman Report: 1Q 2013 Hamptons Sales [Douglas Elliman]
The Elliman Report: 1Q 2013 North Fork Sales [Douglas Elliman]
Market Chart Library [Miller Samuel]
Aggregated Custom Market Data Tables [Miller Samuel]

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We published our report on the Long Island sales market for 1Q 2013.

This is part of an evolving market report series I’ve been writing for Douglas Elliman since 1994.

Key Points

1Q 2013

• Lowest first quarter listing total in a decade.
  
• Signed contract volume jumped from year ago levels.
  
• Housing prices remained generally stable, indicators mixed.
  
• Limited supply beginning to apply upward pressure to stable markets.
  
• Credit remains tight, restraining supply from entering market, no urgency to list.
  
• Record low mortgage rates and release of pent-up demand keeping demand strong.
  
• Less high end sales as tax-incentivized buyers rushed to close at the end of 2012.
  
  

Here’s an excerpt from the 1Q 2013 report:

…The lack of supply and rise of contract activity continued to define the Long Island housing market. Listing inventory fell to the lowest first quarter level seen in a decade as pending sales continued to rise. Despite the tightening of the market, overall price indicators remained mixed. The number of listings in inventory at the end of the first quarter fell 24.8% to 15,303 as compared to the same period last year, a ten year first quarter low…

You can build your own custom data tables on the market – now updated with 1Q 13 data. Check out the charts by browsing in our chart library.

The Elliman Report: 1Q 2013 Long Island Sales [Miller Samuel]
The Elliman Report: 1Q 2013 Long Island Sales [Douglas Elliman]
Market Chart Library [Miller Samuel]
Aggregated Custom Market Data Tables [Miller Samuel]

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We published our report on Manhattan market sales for 1Q 2013 today.   I’ve been writing this series for Douglas Elliman since 1994.

My Take

-Inventory remained near historic lows, seeing the largest year-over-year decline in the 12+ years we’ve tracked it.
-Sales increased despite drop in inventory – low mortgage rates and pent-up demand as key drivers.
-All price indicators increased from year ago levels – largely due to inventory near historic lows.
-Largest price increases since credit crunch began with exception of 2010’s federal homeowner tax credit era.
-Days on market and listing discounts dropped as inventory declined.
-Luxury market had slower rate of decline in inventory (about half) than the overall market.

Here’s an excerpt from the report:

…The first quarter Manhattan housing market was defined by the acute shortage of inventory. As with many US housing markets, inventory in Manhattan has been falling for several years; this quarter, listing inventory posted its steepest year-over-year drop in the 12 years we’ve been recording it, declining 34.4% from the prior year quarter to 4,960. This was the ninth consecutive month and the 14th of the last 15 months that has shown a year-over-year decline in inventory. Despite the drop, number of sales increased 6.3% to 2,457 as consumers fought tight credit conditions to take advantage of low mortgage rates, and more still were incentivized by the rise in rental prices over the past two years…

The charts and data tables are updated to include the first quarter of 2013.

Here is some of the press coverage for the report today.

The Elliman Report: 1Q 2013 Manhattan Sales [Miller Samuel]
The Elliman Report: 1Q 2013 Manhattan Sales [Douglas Elliman]

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[click to open reports]

We published our report on the Long Island sales market for 4Q 2012. Since this was the final quarter of 2012, we also released our Long Island Decade report, a ten year moving window data compendium of the Long Island market from 2003-2012

This is part of an evolving market report series I’ve been writing for Douglas Elliman since 1994.

Key Points

4Q 2012

• Lowest fourth quarter inventory level in 8 years, down 21% from a year ago.
  
• Year end rising momentum in sales as pending sales outpaced closed sales.
  
• Price indicators were up across-the-board from a year ago.
  
• Credit remains tight as economy slowly improves.
  
• Inventory falling – low to negative equity, no urgency to list.
  
• Sales rising as record low mortgage rates create demand.
  
• A release in pent-up demand from election year and “fiscal cliff” concerns over rising taxes.
  

2003-2012

• Sales increased for first time since 2006.
  
• Median sales price up 3.2% over decade.
  
• Market peak in price was 2006, same as the US housing market.
  
• Housing prices have shown stability for 3 years.
  

Here’s an excerpt from the 4Q 2012 report:

…Long Island, like much of the greater New York region, is experiencing a chronic short of listing inventory. Steadily declining over the past several years, Long Island listing inventory reached an 8-year low in the fourth quarter. The large year-over-year drop in supply was met with an increased level of sales activity, both in terms of signed contracts and closed sales…

You can build your own custom data tables on the market – now updated with 4Q 12 and annual 2003-2012 data. I’ll post the updated charts soon. In the meantime you can browse our chart library.

The Elliman Report: 4Q 2012 Long Island Sales [Miller Samuel]
The Elliman Report: 2003-2012 Long Island Decade [Miller Samuel]
The Elliman Report: 4Q 2012 Long Island Sales [Douglas Elliman]
The Elliman Report: 2003-2012 Long Island Decade [Douglas Elliman]
Market Chart Library [Miller Samuel]
Aggregated Custom Market Data Tables [Miller Samuel]

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A good friend of mine, Mark Stockton of Valuations Unlimited, LLC, has developed a powerful research tool to aid in valuation. Mark is a sharp unassuming guy who has sold technology to Wall Street before. Here is a simple overview. It addresses the significant elements of the technology. It’s not an AVM and better yet…it actually works! His technology develops the replacement cost, market analysis, land residual analysis, assessment analysis, sale price index and rental analysis and allows the user to weight the applicability of each approach.

Here’s the second installment of his property valuation trilogy. The first installment covered ‘Sustainability‘. This version is about “defensibility”. It was perfect timing since I just testified in court this morning as an expert witness to defend my appraisal report.

In Defense of Defensibility
By Mark L. Stockton
June 7, 2012

Can you imagine walking into an IRS audit without the slightest ability to defend the deductions you have taken to reduce your tax liability? Not on your life! If your tax return was to become the subject of an audit, you would walk into the meeting with the IRS auditor equipped with all of the support documentation required to substantiate every entry on the tax form. To do less would be to risk a ruling disallowing specific deductions and perhaps requiring you to pay some amount of tax plus penalty and interest.

The concept of defensibility is not new to any of us, nor is it confined to our tax filings. The theory has universal application for any service or product that relies to some degree on the appropriate selection of factual information, and the analytical abilities and/or opinions of one or more individuals. As this relates to the mortgage industry, a title policy must be defensible, or it is of no value. A credit report or an income statement must also be defensible in order to have any worth. It stands to reason that a real estate appraisal should be able to withstand the same scrutiny – but it generally will not.

Residential real estate appraisals are seldom defensible. Traditionally, lenders have audited appraisals for completeness (are all the boxes checked?) without giving any consideration to the reasonableness of the value conclusion. That changed – or was supposed to change – with the adoption of the Interagency Appraisal and Evaluation Guidelines in December of 2010.

Consider the following excerpt from the Guidelines:

XV. Reviewing Appraisals and Evaluations
This review also should ensure that an appraisal or evaluation contains sufficient information and analysis to support the decision to engage in the transaction. Through the review process, the institution should be able to assess the reasonableness of the appraisal or evaluation, including whether the valuation methods, assumptions, and data sources are appropriate and well-supported.

Interpret this anyway you wish; it is impossible for a lender to assess the reasonableness of the appraisal or evaluation without considering whether or not the value conclusion is reasonable. In order to accomplish that task, all of the items set forth in the provision above must be readily available and/or readily apparent to the lender.

• There must be sufficient information to support a decision making process.
• There must be sufficient analytics to support the value conclusion
• The valuation methods used must be adequate and applied properly
• Assumptions must be documented
• Data sources must be adequate

Given the lack of support documentation that accompanies a residential appraisal report, it is impossible to determine whether any of these criteria have been adequately addressed. Under these circumstances, how can anyone be expected to make a determination about the reasonableness of a value conclusion as the Guidelines require, and as common sense and prudent business practice dictate?

The appraisal process today is an abbreviated version of that which was once mandated. Generally, a single approach to value is considered – the market comparison approach. This method depends on the successful execution of two procedures:

1. The identification properties that have recently sold, that are reasonably similar to the Subject property in terms of location and property characteristics, and that best represent local market conditions (“comparable properties”)
2. The determination of reasonable dollar adjustments to account for the locational and characteristic differences between each comparable property and the Subject.

We know from studies performed periodically by Fannie Mae and others that a significant percentage of the time – perhaps 40% – properties identified as comparables on appraisal reports are in fact not comparable. A valuation process that begins with such a flawed premise can seldom arrive at a reasonable, defensible value conclusion. We don’t know what properties comprised the set from which eventual comps were selected, nor do we know the precise criteria used to define “comparability”. Likewise, we do not know the analytical basis for the computation of the dollar adjustments.

What do we know?

• There is insufficient information to support a decision making process
• A single approach to value is insufficient to support a value conclusion
• The valuation methods used are inadequate, even if applied properly
• Assumptions are seldom documented
• Data sources may not be adequate

The sum of our knowledge leads us to the following determination: The information supplied is inadequate to form an opinion about the reasonableness of a value conclusion, which cannot, therefore, be used in a prudent decision making process.

Unless and until the appraisal product becomes defensible, as defined in the Interagency Guidelines, lenders will be unable to comply, and appraisals will not be useful tools for lending or investing decisions.

• Valuation Research Assistant [Valuations Unlimited, LLC]
• Interagency Appraisal and Evaluation Guidelines [OCC]
• ‘Sustainability’ of Property Values, Part I of Trilogy [Matrix Blog]

Tags: local market knowledge

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FHFA, the oversight agency for Fannie Mae and Freddie Mac, released their monthly US Housing Price Index for April. The index shows some stabilization since January however, April is the last month of the federal tax credit for first time buyers and existing homeowners so it would be reasonable to expect declines over the next 2-3 months.

U.S. house prices rose 0.8 percent on a seasonally adjusted basis from March to April, according to the Federal Housing Finance Agency’s monthly House Price Index. The previously reported 0.3 percent increase in March was revised to a 0.1 percent increase. For the 12 months ending in April, U.S. prices fell 1.5 percent. The U.S. index is 12.8 percent below its April 2007 peak.

Index Background
The index lags NAR’s Existing Home Sale by one month but it is a repeat sales index rather than an aggregate report. The index tracks Fannie and Freddie purchases mortgages where they acquire the paper or provide a guaranty, which dominates the mortgage business and provides the standardization that the secondary mortgage market relies on. This promotes liquidity of the US mortgage market but is limited to conforming mortgages of $417,000 in most of the country and $729,750 in designated high priced housing markets like the NYC metro area.

As a result of its data source, this repeat sales index is NOT a proxy for the US Housing market because it is skewed toward the sub-million housing market, roughly 80% of the US housing stock but is performing much better than the remainder because of the standardization provided by the former GSEs (Fannie and Freddie) and the backing of the federal government. Still, it represents the majority of the US housing market and warrants observation.

Since I am wary of seasonal adjustments my chart tracks the non-seasonally adjusted index, even though the press release relies on seasonal adjustments – the trend is the same but the month over months vary somewhat.

Tags: FHFA, GSE

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NAR released its May existing home sales report today. This was one of the most bizarre existing home sale reports I can recall.

First of all, the expectation of a drop in sales activity was widely expected due to the end of the federal tax credit, yet economists surveyed were anticipating an increase in sales in May? Real estate professionals were bracing themselves for a decline in sales in May.

Economists surveyed by Dow Jones Newswires expected existing-home sales to climb by 5.0%, to a rate of 6.06 million. The surprise decline followed two increases driven by a tax incentive for first-time buyers that the government enacted to spur a housing sector recovery.

I viewed the impact of the tax credit as “poaching” sales from the next 60-90 days rather than a vehicle to jump start the housing market. We really need jobs first.

But if you look closely at the data, M-O-M sales were up or flat in each of the 3 regions except the northeast, which posted an 18.3% seasonally adjusted decline.

The report headline was generally accurate “May Shows a Continued Strong Pace for Existing-Home Sales” if you remove the northeast from consideration.

Sales price showed the same pattern. While US prices were up 2.7% M-O-M, the northeast prices declined 2.2%.

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My interpretation of this “Northeaster” centers around foreclosures. The south and west posted significant foreclosure activity and price declines nearly 2 years ahead of the northeast. The midwest hasn’t seen the same volatility as the other regions. Perhaps the west and south have been pummeled enough that they are actually seeing a bottom in both sales and prices trends. Foreclosure activity is flowing freely while the northeast seems to be lagging in that regard.

Ok, I’m reaching through generalizations but why the disparity by region?

Here are this month’s metrics:

• existing-home sales fell 2.2 percent to a seasonally adjusted annual rate of 5.66 million units in May down from a revised 5.790 million in April
• existing-home sales are 19.2 percent higher than the 5.1 million-unit pace in May 2009.
• housing inventory fell 3.4 percent to 3.89 million existing homes available for sale from April 10 but is 1.1% above last year
• there is an 8.3-month supply down from an 8.4-month supply in April and down from a 9.7 month supply last year.
• national median existing-home price was $179,600 in May, up 2.7 percent from May 2009.
• distressed homes accounted for 31 percent of sales last month, compared with 33 percent in April 10 and 33 percent in May 09.

Tags: NAR, National Association of Realtors

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CoreLogic (Formerly First American) released their Home Price Index Report for April 2010

“The monthly increase in the HPI shows the lingering effects of the homebuyer tax credit,” said Mark Fleming, chief economist for CoreLogic. “We expect that we will see home prices remain strong through early summer, but in the second half of the year we expect price growth to soften and possibly decline moderately.”

Of the biggest markets, Washington DC best, Chicago worst:

Of the 50 states, Idaho and Illinois show largest YOY decline:

Notes: The index is a compilation of repeat sales transactions going back to the mid-1970s, from CoreLogic’s own property information and its securities and servicing databases covering all 50 states. The index tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate “constant-quality” view of pricing trends than basing analysis on all home sales.

The report is the only major one I am aware of that breaks out distressed properties from actual – I tend to ignore the breakdown since I don’t see these markets as mutually exclusive. In other words, distressed properties compete with non-distressed and by simply removing the distressed properties from the mix, price trends of the non-distressed properties were still impacted by distressed sales.

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