January 22, 2018

Perfunctory Valuations Abound

A report from CNBC. “December’s steep drop in single-family housing starts is not indicative of what is really going on at construction sites across the nation. There is optimism among homebuilders and a sharp rise in demand from homebuyers. Builders are now starting to build more speculative homes — that is, homes that don’t have a buyer yet, because demand is so strong. ‘The builders are shifting to the lower price points and entry-level, but their entry-level buyer is a more affluent entry-level buyer, somebody who went to college, got married in their 30s, buying in communities that are $800,000 instead of a million 2,’ said John Burns, CEO of John Burns Real Estate Consulting.”

From the Arizona Republic. “Rising metro Phoenix home prices are making it harder for many buyers. But this month, government mortgage backers began offering a little extra help. The Federal Housing Administration, Fannie Mae and Freddie Mac have raised the loan limits for mortgages. Almost 64 percent of all Phoenix-area homebuyers used one of those loans to buy in 2017, so the higher limits are bound to give the market a boost.”

“Homebuyers can now borrow up to $453,100 using Fannie and Freddie mortgages. That’s up $29,000 from last year. The loan limits on Federal Housing Administration loans climbed to $294,515 from $279,450 at the beginning of the year. ‘I’ve been surprised by how many new loans we have seen since the limits were increased this month,’ said Dean Wegner of the Scottsdale office of HomeStreet Bank. ‘I think the higher limits helped with some pent-up demand from buyers.’”

“Since the too-easy-to-get subprime mortgages that spurred the housing crash, any changes to make getting a mortgage easier raises alarm bells with some real estate market watchers — including me. I’m watching closely for any signs that could spark another housing crash. But this is only the second time since the crash in 2008 that federal loan limits have been increased. The first was in 2016. And metro Phoenix home prices have nearly doubled since the crash.”

From Mother Jones. “The Wall Street Journal reports that banks are getting tired of performing actual appraisals for high-volume home loans—the kind that get packaged into mortgage-based securities—and are turning instead to less rigorous broker price opinions: ‘Now these perfunctory valuations abound, underpinning tens of billions of dollars of home deals. Sometimes the process is outsourced to India, where companies charge real-estate agents a few dollars to come up with U.S. home values by consulting Google Earth and real-estate websites. BPOs have been used to value collateral in the more than $20 billion of bonds sold by institutional landlords, such as Blackstone’s Invitation Homes Inc., and in the fast-growing business of lending to individual house flippers.’”

“‘Their popularity,’ says the Journal, ’shows how Wall Street is finding ways to adapt to government efforts to crack down on some of the excesses that contributed to the housing crisis.’”

The Argus Leader in South Dakota. “Rising home prices in Sioux Falls last year are likely unsustainable and could create problems for families trying to afford a house this year, according to economists for a national provider of homeowner’s insurance. The same goes for South Dakota’s second biggest city. Both Sioux Falls and Rapid City ranked near the bottom of Nationwide’s housing affordability index, which rates hundreds of metro areas across the United States.”

“The resulting score allows for short-term predictions about housing trends in each market, said Ben Ayers, senior economist for Nationwide. ‘If you’re a homeowner right now, you’re going to have a little more trouble selling a home,’ Ayers said. ‘You may not get as much money for a home.’”

“It’s not that individual homes are increasing in price, it’s that there’s been more new construction of high-end homes that sell close to the million-dollar mark, said Harlan Ten Napel, an agent for Ameri-Star Real Estate. ‘The reality is, from my perspective, there’s homes that have not appreciated or have not gone up that much in value,’ Ten Napel said.”

“Still, Sioux Falls’ home price increases simply aren’t sustainable, Ayers said. As much as median income has soared in the Sioux Falls metro since 2010, it’s been outpaced by median home prices, which ticked up to $190,000 last month. That’s roughly $55,000 more than the median price of a home in January of 2011. Sioux Falls’ market gives off ‘mixed signals,’ Ayers said. ‘That’s when we have some concern that something’s out of balance,’ he said.”

From New Jersey 101.5. “Nationwide, the seven counties with the worst foreclosure rates are right here in the Garden State. According to ATTOM Data Solutions, New Jersey had the highest rate of foreclosure activity among the 50 states and D.C. in 2017 — 1.61 percent of all housing units. The report pointed to 57,559 New Jersey properties with a foreclosure filing — default notices, scheduled auctions or bank repossessions — in 2017. While the nation hit an 11-year-low for the number of homes repossessed by lenders, New Jersey reached an 11-year-high in the same category, experiencing a 19 percent increase from 2016.”

“‘That’s where homeowners are actually losing their homes,’ said Daren Blomquist, ATTOM senior vice president. ‘Those properties then hit the market, which in many cases can be a drag on the market because they’re often distressed properties that sell at a discount.’”

The Naples Daily News in Florida. “Hurricane Irma made a dent on home sales in the Naples area in the final months of 2017. Cindy Carroll, a partner in Naples-based Carroll & Carroll Appraisers and Consultants LLC, said there’s a 7-1/2-month supply of single-family homes on the market. She described the market as both solid and logical.”

“At the end of last year the $300,000 and under segment had the largest number of homes on the market — at 1,554. That was followed closely by the $300,000 to $500,000 category with 1,511. The oversupply of homes in some areas could be corrected by the end of season, bringing them back into balance, she said.”

“Changing architectural trends could hurt some sellers. Preferences are moving away from Tuscan to a more West Indies/modern style, which could impact the demand and prices paid for more elaborate luxury homes in the $1 million and up segments, where there is already an oversupply of inventory, Carroll said. ‘De-Tuscanization is possible in some cases, but in other cases, it’s not possible,’ she said.”

From the Omaha World-Herald. “Gil Lundstrom, once head of the second-largest bank based in Nebraska, has lost the appeal of his 11-year prison sentence levied after a jury trial in 2015. Lundstrom, 74 years old at the time of the sentencing in 2016, was the chief executive of Lincoln-based TierOne Bank when it cratered in 2010. U.S. prosecutors attributed the bank’s demise to Lundstrom’s hiding of massive losses in real-estate loans during the 2008 financial crisis.”

“He appealed the sentence, restitution and other aspects of his conviction after the three-week trial in U.S. District Court in Lincoln. On Friday, the Eighth U.S. Circuit Court of Appeals in St. Louis affirmed the sentence and all other aspects of the conviction.”

“TierOne started out as a local bank, but under Lundstrom, a Lincoln attorney who represented the bank and was upped to head man, it began betting on the great U.S. housing bubble of the past decade. It lent to dodgy housing developments nationwide and lost millions of dollars when the developers defaulted. The jury found that Lundstrom hid those losses in company financial statements as share prices plummeted from a high of about $35 to zero at the end. Lundstrom, a native of Gothenburg, Nebraska, is incarcerated in the U.S. Penitentiary at Leavenworth, Kansas.”