Appraisal Scoop

Runt Rants - Foreclosure Blight

I suspect most of my Runt Rants this year will be spin offs from the Sub Prime Meltdown of 2007. The crisis will reveal many weaknesses in our country, and opportunities to correct them. Today's Rant deals with an article by Michael Orey in Business week. Click here read the article.

Mr. Orey talks about those properties which have been abandoned by the owner, foreclosed upon by the lender, then left to deteriorate. He describes what certain communities are doing to address the problem. Lenders in that situation do have legal control over those properties. Lenders are and should be responsible for them.

Folks who own a residence in a residential neighborhood enter into a social contract with the other property owners when they acquire the property. The value of that property is in part created by the appearance and condition of the surrounding properties. Its a gift to the new owner bestowed upon him by the surrounding owners.

The social contract in part accepts responsibility for not doing harm to the newly acquired property which will negatively affect the rights and enjoyment created by the surrounding owners. If the contract is not fulfilled, the sum of the damage done to the neighbors far outweighs the cost the new owner avoided by exercising benign neglect.

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"Outside the Boxes" Part 6 - The Economic Indicator Matrix

In Part 5 we began the "top down" look at the market, providing the reader with a community level overview. Next we'll introduce the economic indicator matrix (over the short real estate cycle) so the reader can better recognize the area's dynamics and trends. - Patrick Egger

"What is the Matrix? You have to see it for yourself." (from the movie The Matrix)

Developing a matrix with key economic indicators and their relationships provides perspective of trends and shifts in the market. Key indicators measure the local economy. Identifying relationships between the indicators makes it easier to spot trends. Including observations will help the reader follow your logic and lead them to similar conclusions, which after all, is the goal.   

• Employment is the key component of any market. Jobs are everything to the community, especially to the housing market. Jobs make the economy move, generate tax revenue, fund home purchases, increase retail spending and are catalysts for travel and tourism.
• Population migrates to jobs, increasing housing demand. Understanding demographics helps you comprehend demand, buyer/seller profiles, etc. Migration patterns into and out of an area tell a story.
• Taxable sales are a measure consumer spending patterns. If sales per capita are increasing or decreasing, it's a sign of consumer confidence levels.
• Housing statistics, including the total housing stock (single family, apartments, condo, mobile homes, etc.), home sales (new and resale), inventory, permit activity (for single and multi-family), apartment and single family rents and vacancy, each provide clues to the direction of the housing market. 
• Performance indicators for the area's major industries reflect the state of the base employment segments. 

For example, in Las Vegas, tourism related statistics such as gaming revenue, visitor volume, hotel room construction, room occupancy levels, etc., are indicative of the health of the local economy since much of it is tied to gaming. As gaming and tourism revenues increase, more rooms are added, creating jobs, housing demand, etc.

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Sub-Prime Goes From Bad to VERSE!

Yesterday the Wall Street Journal highlighted a great year-end Dr. Seuss parody making the rounds on the Internat. Today they're proud to present its author: Cameron Crise of Fortis Investments in London. Mr. Crise also was kind enough to send them the original Broker Joe poem, complete with illustrations.  He also added, “I can only wish that I have less ‘raw material’ to work with next year.”

“Joe” is the brainchild of Cameron Crise, a 36-year-old American currency investor working in London for Dutch-Belgian financial conglomerate Fortis. The narrator of his poem chides pesky bankers who try to sell clients collateralized debt obligations and other foul-looking securities, much like the character in the Dr. Seuss classic who is hounded by Sam-I-Am into eating green eggs. 

Click Here for the full illustrated version.

More sub-prime verse? . . . .

• A poem by Chief Economist David Resler (to 'Twas the Night Before Christmas)

The Principle of Change

"It's a new year with new views, different perspectives and directions. Out with the bad 2007 and in with the hopefully good, 2008.  While many will argue that this year may be worse than last year, I'm more optimistic" - Patrick Egger.

For more than 30 years of professional life, I've followed the media and the experts, often with great disappointment. While I couldn't verify every story, I was more than familiar with local issues and I knew the "spin" was different than the "facts".

The media and the experts were often wrong, perhaps more then they were right. Unfortunately, we don't keep score. If we did, we'd know that the experts serving up the "doom de jour" today are the same ones who were wrong this time last year. Remember the 2007 "soft landing" quotes by some and "recession" quotes by others.

Bad news sells and the media's experts can't wait to line up, get noticed and swear to facts that are poorly researched or presented out of context. The media and the experts aren't much different than stockbrokers that call one client and advise him to sell, while at the same time advising another to buy. They get paid both ways.

By this point, you're probably saying that I want to blame housing's tailspin entirely on the media, when we all know it rightfully belongs elsewhere, on speculators, lenders, appraisers and other market participants.

Not in the least. The point of the post isn't to finger the media and the experts, only to remind us all that regardless of what we read and hear, the task is to do your own "homework", verify the facts, understand what they mean to housing and report unbiased conclusions, whether they match or differ from popular opinion. 

2008 will bring change in many sectors of the economy, government, housing markets and the appraisal profession. There will be those that forecast "the end" while others will spin "the end" as really a new beginning, because there's motivation and profit in both points of view.

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Diversification, An Appraisers Path To Survival - Time to Put that New Years Resolution in Motion...

Are Residential Real Estate Appraisers Soon To Become An Endangered Species?

There is growing pessimism in the air, particularly concerning the future of residential real estate appraising as we have known it. The future will be bleak indeed for those who insist upon approaching the future by hoping for a return to the ways of the past. Their blinders and tunnel vision may well do them in.

There is an enormous shakeout of residential appraisers already well underway.

Sub-prime meltdown, extreme weakness in the Alt-A and Jumbo markets and rapidly bursting real estate bubble have slowed refinance activity down to a trickle of the volume experienced in the recent past. Many leading economists are saying the refinance boom of 2002 to 2006 will be the last, or anywhere near its magnitude, largely due to structural changes evolving in the way the lending business is and will be conducted.

AVM's, BPO's and other emerging forms of desktop underwriting will continue to take an ever larger market share of what once was exclusive domain of the residential appraiser. Predatory AMC's, pitting appraiser against appraiser, will continue to pick away at the net fees most appraisers will get to take home.

The consequence of all these factors has been residential appraisers leaving the industry in record numbers, with many others hanging on by a thread and/or supplementing their income with often unrelated part-time work.

The brightest hope for a residential appraiser’s future survival lies in diversification, with the non-lender arena as the primary target. I have been focusing my marketing capabilities and learning how to harvest business from these niche markets for more than 12 years. I typically have far more full fee business (on average, well over 80% was non-lender originated [new mortgage]), than I can handle. The biggest problem for most appraisers who desire to follow in my footsteps, will be that it cannot be accomplished overnight and can take years for a typical appraiser to build up a sizable non-lender client base.

My suggestion is that you begin to broaden your client base immediately. With the refinance boom over, you don't have a moment to waste. If you are waiting for high volume refinance activity to return, and don't intend to right-size, your demise is probably already written in stone, unless you have very deep pockets. You may well be a casualty if you can't change gears and right size quickly enough. A large operation can be great when there is heavy sustainable profitable volume, but when the economy tanks and lender business evaporates, the fixed overhead can be oppressive. Remember, the only meaningful statistic that underscores your economic health and viability is your bottom line...

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