Of any party to a real estate transaction, the one I would least like to be right now is a residential appraiser. 

On top of the fact that their fees have effectively gone down (on both a relative and nominal basis) over the past ten years, they are quickly being cast as the scapegoats for everything that is wrong with the real estate market.

The biggest complaints?  The process is slow and the value comes in low.  The realtor and home builder community, for it’s part has been arguing for some time that foreclosures and short sales are by definition damaged goods, and should be given less (or no) weight as compared to traditional sales.

There’s also the issue of the Home Valuation Code of Conduct, or HVCC, which mostly divorced lenders from selecting appraisers.  The intent was to eliminate “upward bias” in appraisers as a result of pressure from lenders.  The unintended byproduct of this was to reduce the quality of the appraisal being delivered.  Now we have a low bias problem.

Anyway, I have been meaning to write on this topic since forever but before you read another word of mine, go read Jonathan Millers fabulous post on this issue from today.  He’s responding to recent press releases from the National Association of Realtors and the National Association of Home Builders that essentially blame the appraisers for the continued slide in home prices.  It is right here, but I excerpt the money quote:

“They basically want appraisers to ignore all foreclosure sales because they are “low” and be allowed to expand search guidelines to find higher sales…Their logic is a fall-back to credit boom reasoning which was all about finding the highest sales to make the deal happen”

Aside from all the infighting on how to properly calculate home values in a distessed market (I tend to side with the appraisers here) there are a number of other issues worth mentioning that are, at least in part, responsible for all the Appraisal Angst:

1.  Appraisals are simply harder right now than any time in recent memory.  A good, thorough, competent, experienced appraiser used to be able to turn out 2-4 quality reports per day.  With the market declining and a paucity of good comps, once the “field work” is done (inspection, photos, driving comps) it still takes (I am told) nearly a full day to build the appraisal and derive a value, and that is IF there are comparable sales, phone calls to listing agents on comparable sales are returned promptly, and the subject property is not in any way unique.
 
2.  Volumes are high.  Refi boomlet + spring market + uptick in activity in some market segments, which happen to be tough to comp because so much of the mix is FC/shortsale, etc.
 
3.  Short fused closings.  Many foreclosures and short sales close in 3 weeks or less once under contract.  Every home seller, after sitting the market for maybe 90-120 days, wants to close fast, or if they don’t want to close fast, they want a final approval really fast.  Most refinances close in 30 days or so.  I have closed more loans in 3 weeks or less in the last 6 months than in my first ten years in the business. 
 
When every file is a “rush” you expose all the little issues that normally fix themselves when things proceed normally. Scheduling mixups, borrower schedules, home inspections and the negotiations that often result, underwriter request for additional info or comps, second level “quality control” reviews that almost every bank has implemented on both the retail and broker/correspondent side, etc. etc. etc.
 
In other words, when you pressure test a system, you get to see where the leaks are, and small problems get magnified.

4.  HVCC has pushed a lot of the business to appraisal management firms - these firms take a chunk of the fee, and many of the appraisers have taken a sizeable pay cut as a result, and the best appraisers avoid management companies entirely.

5.  A decent number of appraisers have been forced out or left the business voluntarily - I would venture to guess that most of them that have another viable option (which tend to be the better ones in the first place) bolt at the first chance rather than subject themselves to the vagaries of the new world order for residential appraisers.

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Update: Calculated Risk has hoisted on old post from Tanta, who was on this issue 5×5 over a year ago.

Next week, the Federal Reserve Open Market Committee will conclude a two day meeting with a policy statement and rate decision.  The Fed won’t change rates - this is a given - so the intrigue next week concerns what the Fed says in the policy statement.

Here’s why: Despite the fact that the Fed has (twice) publicly stated that they will keep the federal funds rate “exceptionally low” for an “extended period” many rates not under the direct control of the Fed (such as mortgage rates, for just one example) have shot higher in recent weeks as investors anticipate an economic recovery.

Higher rates, of course, may short-circuit this economic (and housing market) recovery. There’s some concern at the Fed, for sure, yet they have already committed billions to forcing rates lower, so there are real questions about where the Fed goes from here if lower rates are to remain a key piece of the anti-recession arsenal.

To that point, Bloomberg has published an interesting article examining how the Fed may use language, rather than the brute force of more money and new policy initiatives to snap investors back into the proper orbit, re-anchor their expectations for economic recovery, and move rates back down.  From the article:

Enhancing the statement with details on their latest views on inflation and joblessness might be the best way to back markets down from expected rate hikes. JPMorgan Chase estimates that labor-market slack won’t disappear until the unemployment rate drops to around 6 percent.

“How do you get people to believe what you have been saying?” [JO Morgan Chase & Co Economist Michael]Feroli said. “You say you are going to have a very large output gap for an extended period,” and even if the economy picks up “you still have a massive resource gap in the labor market.”

The question for mortgage rate watchers, of course, is, will it work?

If you missed the blow out, fixed mortgage rates have rocketed higher by a point (give or take) in the last couple of weeks.  This despite more than a trillion dollars of federal money intended to keep mortgage rates low.

The trillion dollar question, at this stage, is whether the Fed will commit more dollars to bring rates back down.

To that end, PIMCO’s Mohamed El-Erian has some thoughts on the recent bond market sell-off, and where policy makers are likely to go from here.  A key passage from the article:

“Housing is still central to the stabilization and eventual recovery of the U.S. and global economies. Any further decline in house prices will erode the collateral many Americans borrowed against, dampen their already-fragile consumption appetite, and increase the headwinds facing a banking system that is finally regaining its footing. The U.S. can ill-afford a further sell-off in U.S. bonds at this stage in the economy’s rehabilitation process. Yet there is no easy way for policymakers to address this challenge.

As an illustration, consider the dilemma facing the Federal Reserve. Should the central bank step up its purchases of both Treasuries and mortgages in order to stabilize interest rates, but at the risk of adding to the distortions in these markets; or should it refrain from intervening further and risk a return of widespread economic and financial disruptions?

I suspect that, when push comes to shove, policymakers will opt for greater purchases of mortgages and Treasuries – not because they really want to, but because the alternative is viewed as worse.”

If you are rooting for lower rates, hope Mr. El-Erian’s viewpoint is shared by those at the Fed and elsewhere.

Here’s one for the Amazing Category:

In the last ten days, two separate clients have one very large sums via the lottery.  One was a $500k scratch ticket, of all things.  The second won $200k more conventionally, by hitting 5 of 6 on the most recent powerball drawing.

There is a marketing slogan in this somewhere, I am sure:  Make application with Alex, win the lottery.

The Wall Street journal today has up a very useful, succinct, and factually correct (terms not often associated with mainstream press coverage of mortgage related topics) piece on the challenges faced by would-be refinancers in a world where lending standards have tightened and home values have fallen.

This is a topic I’ve covered before, but the article is worth the read.  And it contains the best one sentence description of how much things have changed I’ve seen

“If you got your current mortgage in the past few years, when less documentation was needed, you may be surprised by the financial colonoscopy that awaits you.”

Word. 

And with mortgage rates sitting at or below (well below for the best of borrowers) 5%, it is worth it.

Go read the whole article - it is free at least for today for non-journal subscribers - and has very useful information on a number of key refinancing issues - from equity requirements, to getting a bead on your home’s value, to what to do if you have a second mortgage, and more.

The foreclsoure mess is causing all sorts of market distortions - this we know.

To that point, Ross Kaplan, real estate agent (and prolific blogger) over at City Lakes Real Estate Blog, gives a fascinating account of what it is like working in a market with many foreclosures, and how insane and frustrating the process can be for a buyer and real estate agent

I excerpt one tidbit, but read all - lots of good stuff:

A small but growing number of foreclosed homes appear to be intentionally priced dramatically below market…The result, as you might expect, is a feeding frenzy: I’ve now seen — and participated in — several deals where there were more than 15 offers on a single home.

Suzanne Ziegler at the Strib unpacks the data in a fresh study from the Minnesota Home Ownership Center that has picked up a shift in those seeking foreclosure prevention counseling.  From the article:

60 percent of those seeking help at the center had prime mortgages, while only 37 percent had subprime. In 2007, 57 percent had prime, 43 percent subprime. Of those with prime mortgages last year, 27 percent were adjustable-rate mortgages,

The report also gives some insight into one of my pet issues, and further evidence against the popular-but-wrong notion that loan type (Subprime, Adjustable rate, option ARM, Alt-A, Interest Only, etc.) causes most foreclosures.  From the study (also see graphic above):

Thirty-five percent cited reduction of income and 15 percent cited loss of income. After that, reasons were poor budget management, medical issues, increase in loan payment, divorce or separation and others.

Got that?  Lots of other great data in the study itself - should be required reading for real estate/mortgage people and interested citizens. Download the Study (PDF!) here.

The Case-Schiller Home Price Index for February hit the ’screets’ today. Bloomberg has the details.

The bad news:
Home prices are still skidding badly - Minneapolis is off 20% YOY, and 32% off the 2006 peak.

What qualifies as good news:
The streak of 16 consecutive months with record breaking declines is over. At least for now.

Other sort-of good news:
You do not own property in Phoenix.  From the NYT:

“Phoenix has achieved the unwelcome distinction of becoming the first major American city where home prices have fallen by half since the middle of the decade, according to data released Tuesday.”

Last Week
Mortgage rates remain at historically low levels and saw very little change last week as markets failed to latch-on to some mildly positive (in a “not completely horrific and thus positive” sort of way) developments in the outlook for financial institutions.

If you are watching interest rates, the only guarantee is that they will head higher when the economy begins to recover, which is why I am watching for inflection points so closely.

Some recent developments - most notably improved earnings for some big name financials like Bank of America - have been cast as a glimmer of hope for economic recovery.  Before you buy headlong into the idea that the worst of the crisis is over and it is only a manner of time, spend a few minutes reading this excellent summary by Jeff Harding, vis a vis, economic “green shoots.”

This Week
The possibility of a serious influenza outbreak provides a morbid backdrop for global markets this week - depending on the severity and speed of any further spread, there will/may be flight to quality moves around the globe as investors position assets in safe havens to guard against the dysfunction and chaos that may grip markets should a serious flu epidemic or pandemic develop.

Against that setting, the economic calendar may take on secondary appeal, but there are a number of important reports whose influence will swiftly be brought to bear if the influenza’s impact turns out the be mild.

• [Wednesday 8.30 AM ET] The first look at first quarter GDP is released.  It is expected that the economy contracted at a 4.5%-4.9% pace. Anything significantly worse than that may help rates move lower.
• [Wednesday April 29, 2.15 PM ET] The Federal Reserve Open Market Committee wraps a two-day conclave on Wednesday with a policy statement and rate decision.  Fed-directed interest rates (Fed Funds, Discount Rate) will remain anchored at ultra-low levels - so I do not expect any surprises here.  The statement itself will give us the current state of and latest prognosis for our fragile economy. Hints of a second half  recovery may embolden market optimists.  This would push rates higher.
• [Thursday, 8.20 AM ET]  Personal Consumption Expenditures Index gives us a read on income, spending, and inflation at the consumer level for March.  Any inflationary ticks here could pressure mortgage rates higher.

Update: There’s also eleventy billion metric trillions of Treasury debt issuance on the calendar this week.  That amount of new supply hitting the bond markets makes a move lower in interest rates awfully tough.

Anyway, add possible global influenza outbreak to the list of “things that may influence interest rates.”  Don’t think it can happen?  Here’s a great read that I plucked from my home bookshelf on Saturday.

· This Week’s Economic Calendar [Barron’s]
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Watching Rates? Don’t forget to subscribe to my RateWatch Twitter feed.  It’s posted in (almost) real time in the center column, or you can grab the feed directly and have updates piped to your phone, RSS reader, IM, or Twitter account.

Animated job loss heatmap from Slate.com

Last Week:
Mortgage bonds faced some selling pressure but managed to mostly hold their ground in the face of a better than expected start to earnings season on Wall Street, which did pull money out of bond markets and into equities.  30 Year fixed rates drifted slightly higher, but are still sporting a 4 handle.

There was cautious, qualified optimism about the economy from several important sources - most notably Ben Bernanke - who affirmed his “fundamentally optimistic” outlook.

As mentioned last week, I am not convinced we are past crisis stage, but the velocity of the economic contraction seems to have slowed in some quarters, which is encouraging.

This Week:
Never forget, interest rate levels can be thought of as a proxy for general economic health.  This is the very real paradox involved if you are “rooting” for lower rates - you want them to go low, but not so low that you are out of a job.  And when the economy does begin to recover in earnest, rates are going to reverse course in a hurry. 

Earnings season continues as 40% of DJIA components report earnings this week.  Watch this closely - bond markets will remain tightly levered to stocks, and rallying stocks usually hurt mortgage rates.  

The economic calendar has a handful of mostly second tier reports scheduled.  Leading Economic Indicators, Home sales (Existing (Thurs) and New (Fri) and durable goods orders stand out as the most likely market movers. As always you can track the reports themselves at the link below from Barron’s
This Week’s Economic Calendar [Barrons]
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Watching Rates? If you are following mortgage rates, don’t forget to subscribe to my RateWatch Twitter feed.  It’s posted in (almost) real time in the center column, or you can grab the feed directly and have updates piped to your phone, RSS reader, IM, or Twitter account.