Housing bubble

General Real Estate Investing
41

DFW-

I’m not trying to pick on you BUT, your comprehension of the appraisal process is limited.

“…neighborhood statistics and basically every other box on the URLA…” That’s URAR

I’ve performed literally thousands of valuations (estimated some 4500). As such I can tell you…all three approaches to value MUST be used, and if they’re not…the appraiser MUST give a valid reason why they weren’t.

I performed a cost approach on nearly every assignment I ever completed, and while the degree of difficulty estimating accrued depreciation increases the older the home is…over time an appraiser can become quite accurate & adept at estimating that depreciation and arrive at an accurate opinion of value.

Moreover, I purchased rental data from a variety of sources & feel the income approach is excellent support as is the cost approach for the sales comparison analysis. Of course it’s become somewhat skewed in recent years in some markets thanks to a marked increase of amatuer speculators entering the markets. In my region it’s still an apropos approach to value & I analyze GRM’s closely when I invest for myself.

“Here’s an excercise - try to get an appraiser to commit to an ‘opinion of value’ for a house for 1 year from now. They won’t.”

Find yourself a ‘specialist’ and they will. Of course their appraisal will be loaded with disclaimers & stipulations. To some extent an appraisal for feasibility studies is a predictive valuation (so’s an appraisal based on plans & specs, or an REO appraisal to some extent). The appraiser makes extraordinary assumptions & performs a hypothetical appraisal.

A word on appraisers & appraisals: Like any other profession (real estate agency for instance) an industry is comprised of people from a wide variety of backgrounds & education. While we all know of number-hitters & sweatshops…those individuals and entities are by no means reflective of the entire profession, anymore than investors are greedy opportunist portrayed in the popular media.

AVM’s are another discussion, and I haven’t contradicted myself…I just feel you’re having difficulty understanding my debate.

Whether my experiences have given me some insight as to what the short term future holds in store is evidenced by my accuracy valuing REO’s (future sales), and my own investments.

[i][b]“Here is an excercise.”

“Can someone provide data of a time when the local economy was strong, unemployment was low and house prices DECREASED?”[/b][/i]

Your ‘exercise’ is flawed (we’ve an affordability issue which has grown significantly). I’d just say this one more time; let’s see what happens come mid Feb-March. If interest rates rise due to an increasing job/wage market as you contend, and the markets go flat or stagnate in some regions (So.Cal, Vegas to name two)…it’s gotta be something else…namely affordability due to rising interest rates.

Time will tell, but I say if jobs & wages cause interest rates to rise…we see a significant slow-down in the housing markets (a few noted exceptions aside).

We’ll see,

-Infowell

42

You’re right it’s URAR the URLA is the loan app.

And since I’m an underwriter for a mortgage lender, and I’m the one on the other end of the appraisals I can tell you that Fannie Mae, Freddie Mac, and HUD do not require you to use the cost approach on any property other than new construction. I can also tell you that the income approach is only required for income producing properties. The sales approach is used on ALL appraisals for residential mortgages and the other approaches are used in certain circumstances. If you’re using all three on all properties, well I just can’t give a valid explanation as to why. You’re statement that all three MUST be used is 100% FALSE.

If you’re stating that the lenders you’re submitting appraisals to are for income properties only then that makes sense. But since the vast majority of SFR loans are for non-income producing properties the majority of appraisals done are not using all three approaches. I’m not trying to pick, but your understanding of the lending process is limited.

An appraisal based on plans and specs or one done ‘subject to repairs’ is not giving a value based on the market in the future. That appraisal is giving a value based on what this property will be worth in today’s market once completed or repaired.

I do not claim to be an appraiser, but I do underwrite anywhere from 90-130 loans a month, and I review an appraisal on all loans. I have been doing this for years and I do understand the process quite well. You mention ‘amature speculators’, but the speculators aren’t the ones that drive up value, it’s the end purchaser that does. The cashout refinance of primary residences are a huge driving force in this too. Neither of these are amature speculators, as you put it.

My exercise isn’t flawed. What you’re saying is that this time in history affordability of houses or lack of, is what will cause a housing bubble to burst. My contention is that houses are more ‘affordable’ today than they were 30 years ago. No longer is there a large capital requirement to purchase one. Home ownership, as a percentage of families that own homes in the U.S., is at historically high levels (indicating more affordability). My contention is that the supposition that the economic climate and it’s effects on house prices is not new and unchartered territory. The fact that I ask for a historical basis for your contention on the future of the housing market is neither flawed nor inappropriate. I’m citing examples, statistics, and proven historical evidence for my basis. You are providing conjecture based on your ideas that have yet to be based on past examples or previous market downturns.

Don’t take this as a response that I’m not open to discussing, but don’t think because you state that you have 4500 valuations that you can the make suppositions that aren’t based on historical evidence and I’ll just concede. I’ve reviewed as many appraisals as you’ve generated. I’m personally responsible for default rates of loans that I underwrite. I’m reviewed and audited by HUD and have to give my approval on all FHA appraisals before the loan can be insured. I have quite a bit of experience in the field. I do not expect anyone to just my word on anything because I throw out my resume, I will provide facts for why I believe what I believe.

43

DFW-

I only read the paragraph below. I’m busy & don’t have time to spar with you.

“And since I’m an underwriter for a mortgage lender, and I’m the one on the other end of the appraisals I can tell you that Fannie Mae, Freddie Mac, and HUD do not require you to use the cost approach on any property other than new construction. I can also tell you that the income approach is only required for income producing properties. The sales approach is used on ALL appraisals for residential mortgages and the other approaches are used in certain circumstances. If you’re using all three on all properties, well I just can’t give a valid explanation as to why. You’re statement that all three MUST be used is 100% FALSE.”

“Underwriter for a mortgage lender”…now I understand where you’re coming from. You missed your calling…you like to argue…should’a considered law.

“I can tell you that Fannie Mae, Freddie Mac, and HUD do not require you to use the cost approach on any property other than new construction.” GOT USPAP? Ever read the Uniform Standards Of Professional Appraisal Practice? I said “federally related transactions” I didn’t say anything about Fannie, Freddie or HUD requiring anything.

I don’t pretend to know your business because I’m an Broker/Appraiser…what would lead you to believe you’ve a better understanding of my business than I do because, you’re an underwriter?

I’m bored…

-Infowell

44

DFDub-

Lets get back on topic…since you like handing out exercises;

With jobs/wages increasing of late…why is it you suppose that rents are going up for the 1st time in 4 years?

In the area in which I live…we’ve quite an in-migration due to the desireable job market. However, sales are slowing significantly (even though it’s the slow time of year…numbers are WAY OFF relative to the past few years), and rents are increasing. Rents are increasing because, of increasing demand.

My take is that it’s an affordability issue. I mean…I know you’re an Underwriter and all (don’t seem too busy to log on & spar over the past week though), but people are telling me (as a Broker) that they can’t afford to purchase conventionally, and they’re afraid to purchase using an ARM cause, they’re worried about INTEREST RATES!

What are people telling you when they come in to buy from you?

-Infowell

45

Here is the wonderful thing about this board. I present my argument for my opinion based on facts not just simply conjecture. For instance you write:

"even though it’s the slow time of year…numbers are WAY OFF relative to the past few years"

But if you’ll read this article (which I posted previously in this thread) you’ll see that the DATA doesn’t support your argument.

http://www.usatoday.com/money/economy/housing/2005-11-28-existing-home-sales_x.htm

There is evidence that although this time of year is slow, the slowdown this year has been LESS SEVERE than in previous years. So you’re theory has no basis on a national level.

And while you felt the need to resort to tossing out your resume instead of cold hard facts, and you felt the need to try to belittle me by saying :

" I said “federally related transactions” I didn’t say anything about Fannie, Freddie or HUD requiring anything."

Which begs the question, if HUD (the FEDERAL GOVERNMENT agency that insures FHA loans )doesn’t require them then ‘federally related transactions’ would be wrong now wouldn’t it?

Please read the following article, hopefully it will shed light on why the cost approach is not only not required, but also not relevant to market analysis for existing homes and why lenders do not utilize this approach on anything but new construction:

www.globalvaluations.com/Cost Article-1.pdf

You state that you are not an underwriter, you are a Broker (I’m assuming real estate broker by a previous thread) and an appraiser. You esteem that I should not expect to know more about your professon than you and similarly it would seem that you should not expect to know more about my profession than I do. Given that my profession is to constantly manage risk of transactions and to maintain satisfactory default rates, it stands to reason that my profession takes alot of time and effort to predict what tolerances we need incase payments go up and ability to pay decreases. So what makes you think you know more about what’s going to make people default than say, me?

You also say that rents are increasing due to increasing demand due to an influx people due to the job market. Perhaps you could explain the subtleties of the Supply / Demand curve and how exactly prices will fall with increasing demand and a stable supply. Apparently the economics that I am familiar with doesn’t apply in your market.

I’m not too busy to log on and spar, surprisingly enough I’m fast enough at what I do to do both gasp.

The fact that people are afraid of interest rates doesn’t surprise me. With all the doom and gloom that’s around on the internet and spewed about by the media it stands to reason that they might be fearful of it. Just because people are afraid of something doesn’t mean it’s based on cold hard facts. There was a this whole era of fear based on the cold war and possible nuclear war but that never happened. People are afraid because they don’t get fed the hard facts and people misunderstand the facts they do have.

You can come here and attempt to belittle or even try to sound educated but when you start tossing out that ‘interest rates, interest rates, interest rates’ are what will drive prices then you will lose any credibility you think you have gained because you clearly have only as small grasp on how the markets move. There are many more factors in addition to interest rates that drive prices.

Since you’re a broker, you clearly know this. Buying a home on a 5 year ARM is not entirely a bad idea, even with rising rates, if you’re going to be in the home less than 6 years. And since the average seasoning on ALL LOANS as reported by the National Mortgage Bankers Association is 5.2 years, most people sell or refi before the 6 year mark. It’s not always the best option for them, but there is a reason that Alan Greenspan wrote that for the last 10 years ARMS have been more beneficial to the consumer than fixed rate loans. That’s what I tell people that come to buy from me.

46

“You can come here and attempt to belittle or even try to sound educated but when you start tossing out that ‘interest rates, interest rates, interest rates’ are what will drive prices then you will lose any credibility you think you have gained because you clearly have only as small grasp on how the markets move. There are many more factors in addition to interest rates that drive prices.”

Credibility I think I’ve gained ???

Yeah…I make a bundle posting here anonymously :anon: …don’t know how’ll I’ll live without the extra income.

Underwriter huh…yeah…like that’s the vocation the public seeks out for advice when buying or selling homes. Yup…they say…“what I needs me is an Underwriter! You can keep them Appraisers & Brokers…they don’t know spit! If I want to know which direction the markets are headin…what I needs is an expert. Hey!..how come there ain’t no Underwriters listed in the yellow pages! They should have their own page!”

:ibs: :ibs: :ibs:

47

Either way Infowell. The fact that the public seeks out realtors doesn’t make them any more credible on predicting home trends than those who study it.

I would venture a guess than any serious investor on this board knows more about home values in their area than the VAST majority of the realtors in their area.

By the way, if you want to post the B.S. smilies instead of actually supporting your claims, that works for me too.

48

“By the way, if you want to post the B.S. smilies instead of actually supporting your claims, that works for me too.”

MAN! You’ve got a lot of time on your hands! You sure you’re working?

I’m sittin here in sweats, my hair disheveled, plinkin away on the computer like usual. Other than research…I’ve worked maybe 15 hours outside my home the past three weeks. I haven’t set an alarm in over 7 years except to go fishing. Traffic jams are a thing of the past. There’s 30 baseball hats which line the ceiling of my office–I’ve collected from recent trips here & abroad. Wonder how I manage without credibility & all ??? It’s a mystery.

And you?..do you work in an office? Are you an
E-M-P-L-O-Y-E-E ?

I have given support to my claims: USPAP dictates which approaches to value must be used), and if not used…the reason those approaches weren’t utilized.

The marked slow down I referred to wasn’t nationwide. I was referencing my particular market region & I pay for data sources which certainly support what I’ve stated.

“With all the doom and gloom that’s around on the internet and spewed about by the media it stands to reason that they might be fearful of it.”(ARMS)

The reasons don’t matter. What matters is the public perception, because it’s the public doing the buying. If the public is fearful of ARMS & they no longer qualify for conventional loans something’s got to give.

“That’s what I tell people that come to buy from me.”

REALLY? Many people come to buy from an Underwriter do they. Not any states I can think of that allow just ANYONE without a license to buy & sell real estate for other people. Or were you referring to your investments?

-Infowell

49

Yep, not only am I an employee, but I’m also a business owner who invests in real estate, which is coincidentally why I’m on this board in the first place. You went from knowing the market because of all the data you collect from being an appraiser, to not having appraised in years? Interesting how inconsistant that is. I’m very proud of you that you have baseball caps lining your office, it’s clearly the sign of success that you can wear sweats and not comb your hair. There are those that don’t want to work in an office, and those that do, but it’s not the sign of failure to do so. Should we name all the top CEO’s and compare their success stories to yours and see who wins? You know so much about my position in my company and how successfull I am…OH, and you can spell employee, I’m very proud of you.

You mention the slow down in your area yet you mention influx of people due to the strong job market and high demand. Still haven’t seen how you explain how that defies basic economics. I still haven’t seen any quantifiable numbers from your part to support you claims.

My snide comments weren’t anything to do with appraisers or lenders. It has to do with people who proport to have insight, but only spout off unsupported claims and hide behind some internet persona or alleged resume. If I wrote that I only respond to these message boards while wisping away on my Gulfstream IV en route to one of my many business dealings on the west coast, would that make my insight any more valid to you?

The ‘people that come buy from me’ comment is perfectly valid. I know it’s hard to fathom with all your extensive knowledge that because I u/w loans I couldn’t possibly understand loan programs, run numbers, or consult with individuals that seek my advice on real estate matters. I know it’s unfathomable that perhaps in the company that I work for, that I could wear multiple hats and also lend money to select clients or lend money to individuals for internal considerations. You have a naive view of what the possibilities are from a lender’s point of view. That is in addition to the real estate investment business and those that approach me for information on trends, rates, or any other questions they feel I may have insight on.

In the end, it’s fine, I’m not trying to convince you that you are wrong or that you are right. It’s all speculation on the future anyway. It’s actually quite amusing the assumptions you make about the economics, lending practices, and even the assumptions you make about individuals you have never met and what they do in their businesses.

50

:zzz: :zzz: :zzz:

Shorten em up…you’re gonna put people to sleep

Like This:

Underwriter/Owner/Investor “wisping” up & down the West Coast in your Gulfstream IV en route to one of your numerous business ventures.

Kinda like Bus Boy/Waiter/Chef sashaying along the Left Coast in their Lear Jet visiting one of their many restaurants short a dishwasher.

Word of advice: If you’re going to brag…don’t start off telling everyone you’re an Underwriter…then try to make up ground by saying you own the business, invest & travel around in a Gulfstream…all the time spending your day on the REI Club neglecting your “numerous business ventures” sparring with someone you’ve no respect for.

-Infowell

51

Word of advice, get a grasp of the English language before you respond. Anyone with average reading comprehension skills would understand that my Gulfstream comment was to illustrate that my opinion would be no more or less ‘correct’ if I were homeless or if I were a billionaire.

52

:argue:

Now would you two cut it out. Why can’t we just all get along?

53

Is now a good time to recommend a book?

“HOW TO MAKE FRIENDS AND INFLUENCE PEOPLE”

54

:slight_smile:

Ok, point taken.

55

C’mon!

This is funny stuff.

I’m not taking it personal. I hope DFU isn’t

Besides…we’ve gone from Underwriter…to Owner…to Investor…to Real Estate Salesperson (without a license)…I was waiting for Parade Marshall, or President.

OK…I’ll stop now

56

As long as the tuba player brings the drummer we are O.K.

57

DFW & I’ve been sending each other PM’s the past couple days, and I think I better understand where he’s coming from.

In my market area we’ve had quite an in-migration thanks to our good job market…desireable jobs (which should mean higher demand). Our states Chief Demographer expects this to continue through 2010.

Simultaneously, we’ve seen a marked decrease in new listings (lower supply) coming to market since mid October.

However, I don’t know if it’s just the slow time of year or what, but the number of people buying in this region has slowed considerably (I’m not talking stale numbers here…I’m tracking what’s going on daily…I have the data).

We have what should be high demand & low supply which should equate to rising prices & short marketing times with multiple offers. However that’s not whats taking place at all. The markets gone flat.

Why? We have many good jobs as DFW has referenced, and yet…the market’s stalled. So it has to be something else. DFW hit upon it in an earlier post in this thread. People have been inundated with warnings of a Housing Bubble for nearly 5 years now. They’re warned on television, in print & on the air waves of rising interest rates & the dangers (real or perceived) of ARM’s. Many no longer qualify for Conventional Loans & they’re becoming increasingly afraid of ARM’s.

They’re sitting on the sidelines…that’s why rents are rising for the first time in 4 years. It’s too early to tell…we should know more by mid Feb-March, but if rates keep inching upwards & people get it into their psychy that housing markets are unstable…they won’t buy. With the refi market dead since ‘03’ (relatively speaking), and signs of a slow down ahead for real estate sales…our friend the UNDERWRITER could find himself out of work. Might be out of work already judging by how much time he’s been spending here (his job’s a 9-5 position typically…mine’s not).

My business is slowing down too, and I’ve prepared for this (I’ve been through down cycles before). But, anyone living paycheck to paycheck in this or a related business might be in for a rough ride.

Time will tell :wink:

-Infowell

58

I’m glad you’re concerned for my well being Infowell. Luckily, my job is not in jeopardy - again though, the concern is touching.

59

YIKES!!!

Fed raises rates again???

If that’s the headlines…HELOC’s are goin up again.

The news today in our region was; while home prices are increasing slightly (now where near the monthly increases leading up to October).

BUT!..pending sales are down & marketing times are rising!

:cry: :crying: :crying5: it starts off a trickle & turns into a flood!

60

Luckily, HELOCs are all that are affected since they are the only mortgage product rate that is tied to PRIME, long term rates are independent of the FED Funds rate. If the FED drops the ‘measured’ language (which means they feel inflation is in check) watch long term rates actually improve. The bond market has already priced in the expectation that Fed Funds rate will increase so the increase doesn’t matter for anything but HELOCs. Long term interest rates move more significantly from the bureau of labor details each month than what the FED does. The language that comes out is more signifcant than the rate hike since that’s already priced into bond futures.