Matrix Blog

Government, Politics, Regulations & Policy

Something Existing, Something New, Something Old, Something Skewed: New Home Sales Weaken

September 27, 2005 | 8:51 pm |

The US Census Bureau and the US Department of Housing and Urban Development released the New Residential Sales Report for August 2005 [PDF].


Here are the highlights: [MarketWatch]
* The survey represents about 15% of all residential housing sales.
* Sales of new homes fell 9.9% from July 2005
* Sales of new homes increased 6.2% from August 2004

* Listing inventory increased 2.6% from July 2005
* Listing inventory increased 18.0% from August 2004

* A 4.7 month supply of housing at the present rate, up 14.6% from 4.1 months in July 2005
* A 4.7 month supply of housing at the present rate, up 9.3% from 4.3 months in August 2004

* Median sales price was $220,300, up 2.5% from $215,000 in July 2005
* Median sales price was $220,300, up 1% from $218,100 in August 2004


For more charts:
[Calculated Risk]

What does this all mean?

Well, the survey size is small relative to existing home sales but its based on contracts so its closer to actual market conditions right now. Did you know that this survey is not made based on actual sales data but rather it is based on sample surveys?

The report indicates that the national housing market for August weakened with a drop in volume from last month, an expansion of inventory, yet still an increase in prices. Much of the drop was artibuted to the slow down in multi-family housing, namely condominiums and rentals [REJ]. The jump in mortgage rates in July may have been one of the catalysts for the slow down.

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G’Data! Australians Unhappy With Their Housing Data, The US Doesn’t Seem To Be

September 24, 2005 | 8:28 am | |

In Australia, flawed housing data draws some concerns over their monetary policy thinking [The Australian]. The Reserve Bank of Australia (RBA is the US equivalent of the Federal Reserve Bank) has been increasingly vocal over the past few years over the quality of housing statistics. “Most of the available price information from real estate agents, banks, the various organisations that monitor house prices and the Australian Bureau of Statistics is flawed to some degree.”

Aside: the housing peak in Sydney was in 2003 and the market has fallen 7% in nominal terms over the past 18 months.

The concerns raised by the RBA are the timeliness of the information, changes in the mix of housing being sold (ie, large, small, etc.) and quality and size of the housing being constructed.

Same issues in the US

We have similar issues with the housing data available here. Census data is delayed. We rely on NAR for a large portion of the statistics but they are an industry trade group – by definition has a bias, and the data is generally lumped together not reflective of changes in housing mix.

The Federal Reserve does not appear to be displeased with the US data available to the public. Are they looking at something else?

Saw a great quote published in a recent issue of The Economist in an article on the accuracy of scientific research papers that may be appropriate when applied here:

Theodore Sturgeon, An American science-fiction writer, once observed that “95% of everything is crap”. John Ioannidis, a Greek epidemioligist, would not go that far. His benchmark is 50%.

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I Just Saved A Bunch Of Money On My Flood Insurance By Switching To The National Flood Insurance Program!

September 22, 2005 | 9:36 pm |

With all the devastation caused by Hurricane Katrina and possibly more from Rita in two days, its probably a good idea to consider flood insurance if your property is vulnerable. Yet only about one-quarter of the homes in areas most vulnerable are insured against flood loss [], according to the Federal Insurance Administration (FIA). In those areas, flooding is 26 times more likely to occur than a fire during the course of a typical 30-year mortgage.

[FEMA’s official flood insurance web site []]

John Stossel of ABC News provided commentary on his experience with his waterfront beach house that was washed away in a winter storm [ABC News]. He contends that the federal government should not be in the insurance business. The low premiums (hundreds instead of thousands) actually encourages development in low lying areas. There is a cap on the amount covered but not the number of times the property owner can be reimbursed.

The average annual cost is $450 per month and many homeowners don’t realize flood damage is not covered in standard household insurance policies. Now insurance companies are offering high end houses full coverage or supplemental coverage [REJ] in addition to the federal program.

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In South Korea, Appraisers Are More Corporate In Seoul

September 15, 2005 | 12:46 pm |

In South Korea, there are 2,200 professional appraisers (as of April 2005), the vast majority of whom work in large appraisal corporations (with a minimum of 60 appraisers). Unlike the US, where the profession tends to be made up of small appraisal practices, the South Korean appraisal firms need to be large in order to be credible and to qualify for government work.

The South Korean government is one of the largest buyer of appraisal services in the country, particularly for property asessments. The fees are set by the government based on the value of the property and are, for the most part, generous by current US standards. (The fee for a $10 million property would be about $7,700.) However, the South Korean appraisers have to take the good with the bad, and are often called on to appraise properties at a loss. The fee for a $500,000 property, about $550.

[Soapbox] From Rubble to Rubles

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Real Estate Taxes: The Size Of Homes Expand And Contract

September 15, 2005 | 7:54 am |

This article, Measurements Amiss: Size matters–on your property tax bill struck a particular chord with me, both as an appraiser and a homeowner.

The square footage of properties found in assessor records may be well off the mark. Appraisers should use caution when pulling comps from town hall. Public records are not always accurate. After driving by the comp, if something doesn’t seem right, call the broker who sold the property (you should be doing this anyway).

Square footage is an important consideration for homeowners as well because it affects your tax bill. One of the easiest things to look at is the size of your home versus the size recorded with your town hall. Its a tangible amenity and much easier to make a case for getting your tax bill reduced. With the explosion of home additions, there is ample opportunity for errors in the tax records.

Although this pertains to a commercial building, there’s that old Manhattan joke that the “Empire State Building is more than twice as large as originally constructed.”

Concern over square footage doesn’t just apply to single family houses. Condos also see significant inconsistencies. The developer may include varying parts of the exterior space, such as a terrace, in the total square footage of the apartment, depending on the municipality. While such an amenity provides additional value, there is not an apparent standardization of how much, if any, of these sort of amenities. A small portion or all of this additional area may be included. We have seen condos that must have must have common area included in their gross living calculations. (Its a stretch, but I suspect that was intended to make the price per square foot value appear lower than competing properties.)

There are one family standard measurement techniques set by ANSI and a condo standard required by Fannie Mae which relies in the interior perimeter.

A below grade basement and attic space is usually excluded from square footage. However, there are exceptions. A prior home that I had owned was a Cape Cod style house that had been expanded several times that was lovingly called a “bastardized cape” in that particular market. At least 40 years prior, the attic had been converted to 2 additional bedrooms and a full bath as were most of the other capes in the neighborhood. A portion of this living area should have been considered as part of the square footage which seemed to keep our taxes low as compared to neighboring homes.

[Matrix] Length x Width Is Negotiable

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Bill Getting Eaten By Predatory Lending Concerns

September 8, 2005 | 11:07 pm |

Officials from 4 states today came out agains the pending Ney-Kanjorski bill would weaken laws against predatory lending.

“The Ney-Kanjorski bill pending in Congress and supported by much of the lending industry would gut the strong laws in these states. Another bill, sponsored by Rep. Miller of North Carolina and supported by consumers and civil rights groups, would let states keep strong laws and protect their consumers.”

I do find it odd that the lending industry is nearly unanimously in favor of more restrictions (this bill) since subprime lending has been very profitable for many. The appraiser component of the bill, is more of an empty but magnanimous gesture. In a prior post, I felt that the bill has language intended to protect appraisers from pressure, but the reality is that there are no real preventative measures included. In other words, nada.

See: [The Responsible Lending Act (HR 1295)]

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Mortgage Fraud: Time Adjustments Can Underwrite Reality [part 2 of a series]

September 5, 2005 | 10:22 am |

Freddie Mac’s Weekly Primary Mortgage Market Survey for September 1st shows fixed rate mortgages dropping for the 3rd consecutive week. shows that this trend has continued since the first week of August and mortgage rates took a steep drop after Hurricane Katrina hit. The federal government OFHEO released 2nd quarter housing stats that showed a 13.4% increase in prices over the past year. Granted I have some issues with OFHEO stats, but they do show an important trend.

Then why do most appraisals we review show no time adjustments?

The answer is usually, “the underwriter wouldn’t accept the report with the adjustments included.” However, the sales price or refi estimated value was reached in the final report anyway. How? Other amenities were over or under adjusted to make the number, thats how.

A form of appraisal fraud and appraisal pressure

This a form of appraisal pressure or fraud that occurs so frequently that many underwriters and appraisers don’t even realize that this violates lending and licensing regulations. According to USPAP, the appraiser is not supposed to present a report that is “misleading” to the reader. Characterizing a rapidly rising real estate market as “flat” fills the definition of misleading.

Our firm receives this sort of pressure nearly every day.

The solution: do not remove your time adjustments if they are clearly supported by the market. Time adjustments are an underwriting issue, not a valuation issue. The appraiser is reporting an existing market condition. If the appraiser chooses to comply, then the appraisal must be made subject to a “hypothetical condition” per USPAP.

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Rocking The Housing Boat With Too Much Median Income

September 4, 2005 | 10:03 am | |

WASHINGTON (MarketWatch) – For the second straight year, the income of the typical U.S. family was unchanged in 2004 after adjusting for inflation, the Census Bureau said Tuesday. [Note: Reg.].

“The median income masked widespread geographic and demographic differences:

The highest median incomes were in the Northeast at $47,994 and the West at $47,680; incomes in both regions was unchanged in 2004. The median income in the Midwest fell 2.8% to $44,657. The median income in the South was unchanged at $40,773.”

This was made more clear in New York, where the ratio of low to high median income by county was the largest gap on record. The disparity between the low (The Bronx) and high (Manhattan) median income was 52 times. The Bronx now has the lowest median income of any urban county in the country.

Shrinking Middle Class

However, the middle class is shrinking in New York City. Since the late 90’s, the upper tier of the real estate market has done well because much of the gains in personal income went to the top twenty percent…yet at the same time, the overall median income was flat.

We see statistics that show that the price of housing in many real estate markets is disproportionate to income. If you look in New York, for example, personal income growth has been seen at the top tier and, surprise, surprise that is where the new development has been targeted. Very limited new Manhattan development of middle class housing has occurred. The gains in new housing stock, when thrown into the mix, would tend to skew the overall median (yes, median) and average sales price numbers upward.

This all makes for the argument that it is not very reliable to lump all housing markets into one big bucket or compare overall housing stats to overall personal income stats since the specific market sectors are what tell the story. Otherwise, it paints a picture of rough seas and we better start bailing.

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OFHEO Refinances Their Data

September 1, 2005 | 10:04 pm |

Largest U.S. House Price Increase In More Than 25 Years [Note: Reg.]; OFHEO House Price Index Shows Annual Rise of 13.4 Percent.

Download a full copy [Note: PDF]

Signficant Findings of the House Price Index (from their press release)
1. Nevada continues to have the highest appreciation of all states; house prices increased 28.1 percent over the past year and 5.5 percent for the quarter. However, for the first time since the fourth quarter of 2003, Las Vegas is not on the OFHEO list of the 20 fastest growing MSAs.
2. The second greatest annual price growth was in Arizona. Over the second quarter alone, Arizona house prices grew 9.7 percent – far surpassing every other state. Arizona’s annual growth rate rose from 20.4 percent in the first quarter of 2005 to 27.8 percent in the second quarter of this year.
3. Thirty of the 265 ranked Metropolitan Statistical Areas (MSAs) had four-quarter appreciation exceeding 25 percent.
4. For the first time, Naples-Marco Island, Florida topped the list of ranked MSAs with the highest appreciation. Bakersfield, California was second.
5. Florida, California, Nevada, and Arizona are no longer the only states represented in the top 20 MSA list. MSAs in Idaho and Utah have now entered the list.
6. Twenty-five states (including the District of Columbia) exhibited double-digit annual price growth and eight states had price increases exceeding 20 percent.
7. Four-quarter appreciation rates in Maryland and Virginia (along with Arizona and Florida) were at their highest levels over the 30-year history of the OFHEO HPI.

What does OFHEO do and where do these numbers come from?

  • From OFHEO’s web site: “OFHEO’s primary mission is ensuring the capital adequacy and financial safety and soundness of two government-sponsored enterprises (GSEs) — the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). “

Concerns of having OFHEO as the bedrock for national housing statistics is:

  • OFHEO was basically asleep at the helm before the outbreak of the recent Fannie Mae scandal, but eventually did what it needed to do when pressured by Congress.

  • OFHEO actually uses refinance mortgage recordings as part of the data set in this repeat sales index. If they exclude refinances (which are NOT sales transactions, by the way), the index is actually 10.99%, or 2.44% less than the results that include refinance transactions.

Question: What is the rationale for including refinance data?

Answer: I suspect it would drop the number of transactions in the data set significantly but with $30M+ total transactions, there should be plenty left over to analyze.

  • OFHEO only uses conventional mortgage information from Fannie Mae and Freddie Mac. The conventional mortgage limit is currently $359,650.

Question: How does a data set based on conventional loan limit data influence the results of the report?

Answer: The lack of non-conforming mortgage data (loans in excess of the conventional threshold) basically eliminates the upper end of the housing market.
This paints an incomplete picture of the overall housing market.

Don’t get me wrong, its certainly useful to have these stats generated by OFHEO, just don’t bet the farm on them.

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Disaster Relief Aid: Hurricane Katrina

September 1, 2005 | 5:58 pm |

This has turned out to be a larger disaster than anyone imagined. Here are some ideas on how you can help in the relief effort.

Relief Organizations

[American Red Cross through Apple iTunes]

I used Apple iTunes (100% goes to the Red Cross) but all are great organizations.

[American Red Cross]

[Salvation Army]

[North American Mission Board Disaster Relief Fund]



Disaster Relief Aid After Hurricane Katrina

September 1, 2005 | 5:19 pm |

This has turned out to be a larger disaster than anyone imagined. Here are some ideas on how you can help in the relief effort.

Relief Organizations

[American Red Cross through Apple iTunes]

I used Apple iTunes (100% goes to the Red Cross) but all are great organizations.

[American Red Cross]

[Salvation Army]

[North American Mission Board Disaster Relief Fund]


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In Texas, Privacy Was Not A Pretty Picture

August 31, 2005 | 10:07 pm |

When a number of the 254 Texas tax appraisal districts began to post photos of private homes on their web sites, thats when the trouble began. [Note: Reg.] The practice was designed to help appraisers and better inform homeowners when protesting their taxes. The photos were taken from the public street and were not of the homes interiors. Some districts posted floorplans as well. Effective September 1, 2005, all such content is to be removed.

After much turmoil, the Texas Legislature passed, and the Governor signed, the appraisal photo bill:

SB 541 amends the Texas Tax Code to protect the confidentiality of photographs and floor plans of homes or property. These photographs and floor plans will remain available for the official use of the appraisal district, the state, the comptroller, taxing units and political subdivisions, but will be exempt from Open Records Requests from the public.

This is fascinating because this law showed how far the window on privacy could be pushed. Many of the largest properties in the survey were not revealing because they simply showed the front gate or the trees that blocked the property. Advocates for the bill were concerned that floor plans and photos made it easier for stalkers and burglers.

New York City had done the same thing in the 1980’s but the photos were not in the public domain because the internet was not readily accessible to the public in its present form.

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