Accuriz

Who Really Understands Housing?

Bull’s-eye Jeff!
Real estate is 100% local, but it is affected by macro level economics because the World is Not Flat (Thomas Friedman). I could not agree more that we need to focus on local activity by reviewing public records and the property data associated with these records. All of the experts rely on indexes and organizations that quote:"Underwater Homes" "Shadow Inventory" need to focus on real facts, not shadows in the dark. How can indexes and analyst reports consistently discuss 66% of the market and infer that is the market. First off, how do we know it is 66%, none of the data is published for review. We are expected to take it at face value because a PHd or economist published it.
Buzz words are exactly that, words that someone hopes will become a new phrase so they can pat themselves on the back.

Jeff is correct, let's sees the data and present real facts, based on real data obtained and analyzed from public records. Why are we relying on quotes from a company that just started listing real estate data and the primary function of their business is showing homes listed for sale and getting paid advertising revenue to do so? Real Estate is not Expedia.com. Access to data is critical, but the context of that data is even more critical. The internet makes researching real estate easier, but if the organization presenting the information does not apply the correct context than what is the point?

Why would someone sell in a weak market unless they had to? Common sense applies here unless we tossed it into the Case-Shiller index or the Zillow estimate, which does not apply any factors to bad property data coming from public records. Indexes that at best can show a trend direction, but then again so can does the sign “Traffic Congestion Ahead” and there are no exits to get off the road. “No kidding, but why does the sign before the last exit say traffic following smoothly”. Technology is great, but when it is not connected and common sense is not applied we have chaos and fear.

Several blogs and news articles recently commented that foreclosure sales were pulling markets down 20% in some areas. Think about this long and hard. What will happen when the foreclosure activity diminishes, will values go up 20% and will millions of home then be above water? We all know the answer because we are not that stupid; the real question is what we gain by spreading the fear and misinformation?

And that is exactly what this is, how much misinformation can be fed to manipulate the market. Analysts did it on the way up and now on the way down. Well at least some people can write books on how stupid we all are and we should pay $29.99 to learn how to make a $$ million in real estate.

Housing Sector Still a Major Problem

Concrete Guy is an appropriate name. Set it in stone because it can not be said better. America is great for Football, especially the Monday Night Quaterback. We all know the answer. T2 is a source, read their reports carefully. Some of the data is inconsistent.

Yes there are issues out, but go back to Concrete Guy. Solid foundation lasts a long time.

Housing Inventory Still High: Are There Enough Buyers and Savers?

Your comments are interesting, but quite frankly fall short of the critical issue. In the past five years, 4 million renters became home buyers. These renters did not have the ability to own a home for several reasons. Notably real estate taxes, property insurance, home maintenance issues, utility bills to name just the big ones. Your mathematical approach to home ownership is flawed and quite frankly to state that 20% down is too onerous is ridiculous.

Your analysis should focus on bank underwriting standards which have existed for decades and worked fine until the “Geniuses” on Wall Street needed to figure a way to make even more money. 28% of total gross income to pay mortgage and property takes and 38% to cover mortgage and credit card debt. Great rule if not manipulated with no income verification or asset verification mortgages. Let’s not talk about ARM’s and Interest Only because this was based on the premise that in two, three or five years values would be 20% to 30% higher than when the mortgages were made.

This mess got started because we lowered the standards. Just like any investor will tell you: When you have flesh in the game you have more to lose; therefore you will do whatever it takes to work it out. Mad Hedge has it right; too many people have little or no skin in the game.

It is easy to walk away given these conditions.

Also, if you are going to state numbers, carry the analysis through to the end. Census data is not 100% correct and knowing the real numbers count. Of the 111 million residential housing units, 75 million are owner occupied and out of this group 72% of the properties are mortgaged (54 million). You do not discuss the number of vacant housing units which stands at 13.8% versus the historical level of 10%. You do not discuss median income and median house prices by region. Perhaps you should read our 12 pages report called Housing in Crisis which was published in March. This report discusses your comments in greater detail and analysis.

Has the Housing Market Hit Bottom?

Tim, as always great graphs and valid points, but I would like to add:
Real Estate is three things:

Cyclical
Seasonal
Emotional

Cyclical Cycles run about 15 years in length, and the current cycle started in late 2006. We can track the beginning of this down cycle to the last down cycle in 1990-1991 and we have heard thousands of comments on this. When the cyclical adjustment occurs it is an adjustment to the underlying structural issues in the market. For this real estate cyclical the structural problem comprised of two elements:

A. Influx of new home buyers who received mortgages through non-standard financing. That is the emergence of No Asset, No Docs, Interest Only, Mortgages at 125% of Value programs. We all know the affect these had on the market.
B. Excessive over development which created 5 million vacant housing units not supported by population demand. Expectations of Baby Boomer migration and new homeowner growth fueled this development. The existing oversupply issue will take at least two, if not three more years to be absorbed and new housing starts will remain below 800,000 units in 2010 and 1 million in 2011.

Seasonal Changes occur every year and follow a fairly consistent pattern. The news today and for the next several months is a result of seasonal changes, not necessarily structural. The spring and summer selling season always show the top values in any market, and the fall and winter show the bottom. This is one of the prime affects of the recent crash, it began in late 2006 and early 2007, but did not pick up speed until late 2008. By that time the snow ball going down the hill was an avalanche and the population and financial system reacted accordingly: they ran! The actual correction or rebound in housing will not show signs until the beginning of the Spring 2010 selling season.

Emotional changes are best described by many of the commentaries. Because we lack so much important data on the real estate markets, such as the sales price per square foot which the rest of the industrialized world uses and because of our own ignorance or arrogance (we all know the answer) our emotions take control. Fear of the unknown is the worst element of any financial market. That is what we experienced for the past nine months.

What creates fear is the lack of information. In real estate we always are reporting on the past, and trying to guess the future. Utilization of more quantitative data will permit us to evaluate data more accurately and track the markets in an efficient manner.

How many of the commentators and authors have the actual data? How many are relying on other data sources to build their articles? I have the actual sales and inventory data from over 1,000 assessment offices covering the top 100 MSA’s; but I must rely on Census, Commerce, Labor for their data and we all know there are issues with the data.

So I finish with this, the Free Market must develop an independent solution to track and predict the real estate market, or we will all be talking about this again in 15 years.

Existing Home Sales Rebounding

Great news, or just a seasonal factor coming to play. Residential sales activity is returning to the levels of the seasonal sales market. No one should be surprised that new home sales have increased with the incentives of the $8,000 new home buyer program and interest rates below 5.5%.
But hold on, seasonal sales activity should be up. The peak months for sales will be June, July and August so for the next several months we should continue to see a recovery in activity. The key benchmark for recovery is the median sales price, which is still down. Once the excess building supply and foreclosure activity (accuriz.com)abates this number should correct itself to higher levels of $220,000 to $225,000. This will not occur until the summer selling season of 2010.
So yes, great news, but the real recovery is still a year off.

A 21st Century Lend-Lease Plan

Well stated.


On Jul 16 10:11 AM John Preston wrote:

> If housing stability and the feel-good result, leads to prudent stimulation
> of consumption, and this leads to positive jobs growth, isn't this
> and other programs which share similar objectives worthy of consideration
> and implementaion

A 21st Century Lend-Lease Plan

Historical trends indicate that values will be up. Of course this could prove false and if it does, than what is proposed will pale in comparison to crisis that would exist. This plan is a thought and is based on historical data and analysis. No-one can predict the future, but if we fail to act there are certain things that will occur. Action or inaction, I will take action any day.


On Jul 16 09:07 AM MartyT wrote:

> Nice post thanks. It seems to me that this plan assumes the value
> of the homes go up (or at least stays the same) over the next 7 years.
>
>
> What happens if the house with a $200K loan is valued at $100K in
> 7 years? Wouldn't a lot of people just enjoy their lower rent while
> they can and then walk away?

Are Loan Modification Programs Working?

If someone can pay rent, that rent can be considered part of a mortgage payment. The government is providing $8,000 for first time buyers, so why can’t the government pay part of the payment and have the borrower repay the government in the future. Here is an example of how it could work.

Mr. and Mrs. ZZZZZ have a mortgage payment of $1,170 ($200,000 loan with 30 year payout at 5.75% interest). The ZZZZ’s lose their job and can only pay $470, so the government pays the difference of $700 so the ZZZZ’s remain homeowners and work through their problem. It takes the ZZZZ’s 10 months to get back on their feet, the government paid out $7,000 and now the ZZZZ’s owe the government. But the government says, okay you can start paying us back in seven years and the payment will be over 10 years at an interest rate of 3%.

What the government has done is provide assistance to the property owner (just like the bailout plans for the Financial Industry and Automotive Industry) and requires them to pay back the obligation starting in seven years. This is not a freebie, but short term assistance. Franklin Roosevelt called it Lend Lease.

This program is not perfect, it can assist a lot of people who want to own homes and most importantly it is channeled directly to the property owner, not a large corporation that has motives other than keeping the property owner solvent. A significant benefit of this program is that payments to financial institutions will resume and cash flow will get back to normal levels, thus credit availability should improve.

There need to be conditions, such as confirming gross income via income tax statements, confirming employment and confirming current payroll. The only group of individuals who would be excluded are those who own more than one property (there should be no break to the investor who treated real estate as a business) and cases where mortgage fraud exists in the form of straw buyers and invalid sales (properties that sold more than three times within five years and the value change was greater than 150%)

The total assistance would be capped at $50,000 and could run for 24 to 36 months. So in a given year up to $25,000 could be provided. The government would be releasing the funds over 12 months, this the federal outlay would be limited. The total cost of 10 million loans receive assistance would be $250 Billion per year or $500 billion in total. This is much cheaper than the TARP bailout and part of this can be funded with the current $70 billion in TARP repayments.

The greatest difficulty in implementing this program is processing and accounting. Loan Servicing companies would need to add staff (if one servicer can process 50 applications a week, 4,000 servicers would need to be hired, plus additional support staff) Wow, as many as 10,000 new jobs would be created. Add to this job creation the fact that several million homes do not go into foreclosure and more jobs are not lost to desperate situations.

Yes it is possible and yes it can work.

The reason it can work is because real estate goes through cycles. If people are forced to sell at liquidation prices everyone loses. Give property owners a chance to get back on their feet, get back to work and the whole economy starts to turn around.

As stated early, this is not perfect and many will complain about the injustice. But think about the injustice of the corporate bailouts, the injustice that first time home buyers get a break, the injustice that shareholders come before the individuals who created value in the companies by buying products. One can go on and on, or we can try. We only fail if we do not try.

Mortgage News: Rent Your Own House

If someone can pay rent, that rent can be considered part of a mortgage payment. The government is providing $8,000 for first time buyers, so why can’t the government pay part of the payment and have the borrower repay the government in the future. Here is an example of how it could work.

Mr. and Mrs. ZZZZZ have a mortgage payment of $1,170 ($200,000 loan with 30 year payout at 5.75% interest). The ZZZZ’s lose their job and can only pay $470, so the government pays the difference of $700 so the ZZZZ’s remain homeowners and work through their problem. It takes the ZZZZ’s 10 months to get back on their feet, the government paid out $7,000 and now the ZZZZ’s owe the government. But the government says, okay you can start paying us back in seven years and the payment will be over 10 years at an interest rate of 3%.

What the government has done is provide assistance to the property owner (just like the bailout plans for the Financial Industry and Automotive Industry) and requires them to pay back the obligation starting in seven years. This is not a freebie, but short term assistance. Franklin Roosevelt called it Lend Lease.

This program is not perfect, it can assist a lot of people who want to own homes and most importantly it is channeled directly to the property owner, not a large corporation that has motives other than keeping the property owner solvent. A significant benefit of this program is that payments to financial institutions will resume and cash flow will get back to normal levels, thus credit availability should improve.

There need to be conditions, such as confirming gross income via income tax statements, confirming employment and confirming current payroll. The only group of individuals who would be excluded are those who own more than one property (there should be no break to the investor who treated real estate as a business) and cases where mortgage fraud exists in the form of straw buyers and invalid sales (properties that sold more than three times within five years and the value change was greater than 150%)

The total assistance would be capped at $50,000 and could run for 24 to 36 months. So in a given year up to $25,000 could be provided. The government would be releasing the funds over 12 months, this the federal outlay would be limited. The total cost of 10 million loans receive assistance would be $250 Billion per year or $500 billion in total. This is much cheaper than the TARP bailout and part of this can be funded with the current $70 billion in TARP repayments.

The greatest difficulty in implementing this program is processing and accounting. Loan Servicing companies would need to add staff (if one servicer can process 50 applications a week, 4,000 servicers would need to be hired, plus additional support staff) Wow, as many as 10,000 new jobs would be created. Add to this job creation the fact that several million homes do not go into foreclosure and more jobs are not lost to desperate situations.

Yes it is possible and yes it can work.

The reason it can work is because real estate goes through cycles. If people are forced to sell at liquidation prices everyone loses. Give property owners a chance to get back on their feet, get back to work and the whole economy starts to turn around.

As stated early, this is not perfect and many will complain about the injustice. But think about the injustice of the corporate bailouts, the injustice that first time home buyers get a break, the injustice that shareholders come before the individuals who created value in the companies by buying products. One can go on and on, or we can try. We only fail if we do not try.

Obama's Foreclosure Plan Du Jour: Own-to-Rent

Excellent point, but take it one more step.

If someone can pay rent, that rent can be considered part of a mortgage payment. The government is providing $8,000 for first time buyers, so why can’t the government pay part of the payment and have the borrower repay the government in the future. Here is an example of how it could work.

Mr. and Mrs. ZZZZZ have a mortgage payment of $1,170 ($200,000 loan with 30 year payout at 5.75% interest). The ZZZZ’s lose their job and can only pay $470, so the government pays the difference of $700 so the ZZZZ’s remain homeowners and work through their problem. It takes the ZZZZ’s 10 months to get back on their feet, the government paid out $7,000 and now the ZZZZ’s owe the government. But the government says, okay you can start paying us back in seven years and the payment will be over 10 years at an interest rate of 3%.

What the government has done is provide assistance to the property owner (just like the bailout plans for the Financial Industry and Automotive Industry) and requires them to pay back the obligation starting in seven years. This is not a freebie, but short term assistance. Franklin Roosevelt called it Lend Lease.

This program is not perfect, it can assist a lot of people who want to own homes and most importantly it is channeled directly to the property owner, not a large corporation that has motives other than keeping the property owner solvent. A significant benefit of this program is that payments to financial institutions will resume and cash flow will get back to normal levels, thus credit availability should improve.

There need to be conditions, such as confirming gross income via income tax statements, confirming employment and confirming current payroll. The only group of individuals who would be excluded are those who own more than one property (there should be no break to the investor who treated real estate as a business) and cases where mortgage fraud exists in the form of straw buyers and invalid sales (properties that sold more than three times within five years and the value change was greater than 150%)

The total assistance would be capped at $50,000 and could run for 24 to 36 months. So in a given year up to $25,000 could be provided. The government would be releasing the funds over 12 months, this the federal outlay would be limited. The total cost of 10 million loans receive assistance would be $250 Billion per year or $500 billion in total. This is much cheaper than the TARP bailout and part of this can be funded with the current $70 billion in TARP repayments.

The greatest difficulty in implementing this program is processing and accounting. Loan Servicing companies would need to add staff (if one servicer can process 50 applications a week, 4,000 servicers would need to be hired, plus additional support staff) Wow, as many as 10,000 new jobs would be created. Add to this job creation the fact that several million homes do not go into foreclosure and more jobs are not lost to desperate situations.

Yes it is possible and yes it can work.

The reason it can work is because real estate goes through cycles. If people are forced to sell at liquidation prices everyone loses. Give property owners a chance to get back on their feet, get back to work and the whole economy starts to turn around.

As stated early, this is not perfect and many will complain about the injustice. But think about the injustice of the corporate bailouts, the injustice that first time home buyers get a break, the injustice that shareholders come before the individuals who created value in the companies by buying products. One can go on and on, or we can try. We only fail if we do not try.

Housing Bubble, The Sequel

Excellent point, but take it one more step.

If someone can pay rent, that rent can be considered part of a mortgage payment. The government is providing $8,000 for first time buyers, so why can’t the government pay part of the payment and have the borrower repay the government in the future. Here is an example of how it could work.

Mr. and Mrs. ZZZZZ have a mortgage payment of $1,170 ($200,000 loan with 30 year payout at 5.75% interest). The ZZZZ’s lose their job and can only pay $470, so the government pays the difference of $700 so the ZZZZ’s remain homeowners and work through their problem. It takes the ZZZZ’s 10 months to get back on their feet, the government paid out $7,000 and now the ZZZZ’s owe the government. But the government says, okay you can start paying us back in seven years and the payment will be over 10 years at an interest rate of 3%.

What the government has done is provide assistance to the property owner (just like the bailout plans for the Financial Industry and Automotive Industry) and requires them to pay back the obligation starting in seven years. This is not a freebie, but short term assistance. Franklin Roosevelt called it Land Lease.

This program is not perfect, it can assist a lot of people who want to own homes and most importantly it is channeled directly to the property owner, not a large corporation that has motives other than keeping the property owner solvent. A significant benefit of this program is that payments to financial institutions will resume and cash flow will get back to normal levels, thus credit availability should improve.

There need to be conditions, such as confirming gross income via income tax statements, confirming employment and confirming current payroll. The only group of individuals who would be excluded are those who own more than one property (there should be no break to the investor who treated real estate as a business) and cases where mortgage fraud exists in the form of straw buyers and invalid sales (properties that sold more than three times within five years and the value change was greater than 150%)

The total assistance would be capped at $50,000 and could run for 24 to 36 months. So in a given year up to $25,000 could be provided. The government would be releasing the funds over 12 months, this the federal outlay would be limited. The total cost of 10 million loans receive assistance would be $250 Billion per year or $500 billion in total. This is much cheaper than the TARP bailout and part of this can be funded with the current $70 billion in TARP repayments.

The greatest difficulty in implementing this program is processing and accounting. Loan Servicing companies would need to add staff (if one servicer can process 50 applications a week, 4,000 servicers would need to be hired, plus additional support staff) Wow, as many as 10,000 new jobs would be created. Add to this job creation the fact that several million homes do not go into foreclosure and more jobs are not lost to desperate situations.

Yes it is possible and yes it can work.

The reason it can work is because real estate goes through cycles. If people are forced to sell at liquidation prices everyone loses. Give property owners a chance to get back on their feet, get back to work and the whole economy starts to turn around.

As stated early, this is not perfect and many will complain about the injustice. But think about the injustice of the corporate bailouts, the injustice that first time home buyers get a break, the injustice that shareholders come before the individuals who created value in the companies by buying products. One can go on and on, or we can try. We only fail if we do not try.

Are Loan Modification Programs Working?

Gtarras

Your last sentence states it the best.

We are reading data that means what? The real question is 6 months from now to see how many people are current on the loans. We are so addicted to immediate results, we forget that it does really take time for this to work.

If you want cheap wine make it yourself or if you want a good bottle it needs to age.

Don’t Expect a V-Shaped Recovery in Real Estate Prices

Real estate does follow cycles of boom and bust. All depends on where you are and we can debate this all day.

What we need to do is gain more information and improve the models that were developed 20 years ago and adjust for new information. Many indexes referenced refer to a one dimensional data set (Median or Average Sale Price). This index should be expanded to consider the sales price per square foot and it should consider all valid sales.

The commentary presented clearly indicates a well thought out argument and presentation of various observations. What amazes me is the lack of data beyond a few noted sources and these sources tend to be indexes or government data that no-one is willing to challenge. Most notable index is Case-Shiller, which is being criticized by many analysts for having a bias.

Kudos’s on NYC commentary. Yes commercial property values are due for an adjustment, 40% may be a conservative estimate, but when values were derived using cap rates below 5% there is justification for such concern. Time will tell and the road ahead will be unstable for some period.

When I started appraising 25+ years ago, a professor stated that in the long term real estate always gains in value. This is true because real estate comprises of land, which is finite. According to basic economics, finite resources will appreciate in the long term because of demand.

Recovery will occur and it will occur pretty close to historical trend lines. But here is the real question? In 1991 many believed that the new banking regulations would prevent such a crisis from happening again. History did repeat itself because we did not learn. So will history repeat itself again or will we truly create some protections to prevent such a crisis in the 2020's?

April Showers Bring No Spring Flowers in N.Y. Metro Housing Market

Not surprised given that Radar Logic is not evaluating all of the data for the markets. If you only look at half the market data, what do you expect. Check out their site and you will be amazed.

Secondly, if you focus on distressed sales and do not remove foreclosures, there will be an influence.

And finally, every market is different and the sales that were agreed to in late April and May are just starting to close. Again a little bit of knowledge is dangerous.

We need to use much more data and we also need to take the time to analyze it. General statements are misleading. Accuriz published a report several months ago regarding Housing in Crisis and it took an individual like Warren Buffet to state the same thing before everyone stopped and listened.

The information is there, it all depends if you are listening.

OFHEO More Nationally Representative than Case/Shiller Index

Housing is showing stability and a slight correction. What Casey is stating is very important. Case Shiller is not the be all and end all. Those who take the time to obtain and analyze more data are getting different results than Case Shiller, as shown by Rebecca Wilder.

Perhaps the markets are being influenced by data that is not reflective of actual markets. We cannot keep generalizing the real estate market. Just think about it, how many decisions would be different if individuals realized the market declined 20% versus 30% in several hard pressed markets.