The problems plaguing the housing sector
According to the Realtors’ Confidence Index survey released this morning by the National Association of Realtors (NAR), the real estate sector continues to be plagued not only with tight lending conditions, but “a sizeable share of real estate appraisals [that] are holding back home sales.”
The Association is careful to note that most appraisers are “competent and provide good valuations,” but that appraisals typically lag market conditions, adding that the appraisal process has changed in recent years, causing problems such as the use of out-of-area valuators (which the NAR says are “without local expertise or full access to local data, inappropriate comparisons, and excessive lender demands”). In addition, before the beginning of last year, some lenders’ loan processors edited valuations, cutting them by a certain percentage.
Fully 35 percent of Realtors surveyed in September report contract problems relating to home appraisals; 11.0 percent pointing to a cancelled contract due to an appraisal coming back lower than the price negotiated, while 9.0 percent report contract delays, and 15.0 percent said a contract was renegotiated to a lower sales price due to a low valuation. NAR says these findings “are notable given that homes in many areas are selling for less than replacement construction costs.”
Lawrence Yun, NAR chief economist, said there has been a steady level of appraisal issues for quite some time. “Though the real estate recovery is taking place, the combined issues of stringent mortgage lending requirements and appraisal frictions are hampering otherwise qualified buyers from purchasing a home in a timely fashion, and in some cases are preventing them from buying at all,” he said.
According to NAR, major problems reported by Realtors include:
- Some appraisers are using foreclosures, short sales and run-down properties as comparable homes, and are not making adjustments for market conditions or the condition of the property.
- Appraised values that do not reflect market conditions such as rising prices, the presence of multi-bidding and low inventory.
- Appraised values are very inconsistent and fluctuate widely.
- Out-of-town appraisers, who are not familiar with the area or local market conditions, are being used.
- Turn-around time by both appraisers and banks is slow, which delays closings.
The problems plaguing these appraisals
The trade group expresses concern that some appraisers working for an Appraisal Management Company (AMC) are operating under strict and limited parameters due to bank lending criteria, “which appears to be related to banking regulations or risk aversion on the part of the lender.” Furthermore, unreasonable “put back” risks imposed by Fannie Mae and Freddie Mac could also cause banks to set unrealistic requirements for appraisers.
Additionally, some appraisers do not currently distinguish between distressed and non-distressed properties when making comparisons for valuation purposes, despite NAR data revealing a typical foreclosure sells for a 20 percent discount, and short sales average a 15 percent discount, which NAR says is often the result of valuations made by appraisers “lacking local expertise,” who not only live outside of the market of the property being appraised, but lack full local MLS data.
NAR’s “long-standing policy” on appraisals
NAR President Moe Veissi said some appraisal practices lack common sense. “Our long-standing policy is that all appraisals should be done by licensed or certified professionals with local expertise, which also is what Fannie Mae and Freddie Mac recommend, but clearly this isn’t practiced universally.”
The association advocates an independent appraisal process and enhanced education requirements for appraisers, adding that many appraisers have “faced undue pressure,” whether from an AMC or lender which requires them to complete appraisals requiring up to 10 comparable sales (which almost guarantees the use of distressed sales as comparable properties), or they are required a complete appraisal in an “unacceptably short time frame,” and appraisers are often pressured to complete a scope of work not justified by the fee being offered. “These are major problems,” NAR notes.
“In short, there has been an inconsistent appraisal process leading to disruptive delays for home buyers and sellers,” Veissi said. “All home valuations should be made without undue pressure from any source. Even so, buyers, sellers and agents are free to ask appraisers to consider additional data and to correct errors, or discuss unique aspects of the home, the neighborhood or properties used as comps.”
Despite the appraisal industry’s attempts to adapt, AMCs continue to pressure appraisers. NAR notes that because distressed sales are declining, the ongoing appraisal problems will be alleviated as this inventory drops.
“In the meantime, buyers, sellers and real estate agents need to be aware that there are problems with some real estate appraisals, but also be aware of their rights to communicate with appraisers and lenders about errors or concerns with individual valuations,” Veissi said. “In some cases, a second appraisal may be justified.”
Is the real estate industry endorsing Carson’s nomination to HUD?
(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?
NAR strongly backs Dr. Carson’s nomination
When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”
At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?
The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.
In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…
Job openings hit 14-year high, signaling economic improvement
The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.
Job openings hit a high point
To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.
The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.
Good news, bad news, depending on your profession
That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.
Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.
If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.
If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.
Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.
Gas prices are down, so are gas taxes about to go up?
Do low gas prices mean higher gas taxes are on the way? Budgeting for 2015 just got a bit more complicated, if some politicians have their way.
Gas taxes and your bottom line
Many industries rely heavily on time in their vehicle, not just truck drivers and delivery trucks. Sales professionals hop in their vehicles throughout the day, as do many other types of professionals (service providers like plumbers, and so forth). For that reason, gas prices and taxes are a relevant line item that must be budgeted for 2015, but with politicians making the rounds to push for higher gas taxes, budgeting becomes more complicated.
Gas prices are down roughly 50 cents per gallon compared to a year ago, which some analysts say have contributed to more money in consumers’ pockets. Some believe that this will improve holiday sales, but others believe the timing is just right to increase federal taxes on gas. The current tax on gas is 18.40 cents per gallon, and on diesel are 24.40 cents per gallon.
Supporters and opponents are polar opposites
Supporters argue as follows: gas prices are low, so it won’t hurt to increase federal gas taxes, in fact, those funds must go toward improving our infrastructure, which in the long run, saves Americans money because smoother roads mean better gas mileage and less congestion.
Gas taxes have long been a polarizing concept, and despite lowered gas prices, the controversial nature of the taxes have not diminished.
While some are pushing for complete abolition of federal gas taxes, others, like former Pennsylvania Governor, Ed Rendell (D) tell CNBC, “Say that cost the average driver $130 a year. They would get a return on that investment” in safer roads and increased quality of life, he added.
The Washington Post‘s Chris Mooney points out that federal gas taxes have been “stuck” at 18 cents for over 20 years, last raised when gas was barely a dollar a gallon and that the tax must increase not only to improve the infrastructure, but to “green” our behavior, and help our nation find tax reform compromise.
Is a gas tax politically plausible?
Mooney writes, “So, this is not an argument that a gas tax raise is politically plausible — any more than a economically efficient tax on carbon would be. It’s merely a suggestion that — ignoring politics — it might be a pretty good idea.”
Rendell noted, “The World Economic Forum, 10 years ago, rated us the best infrastructure in the world,” adding that we “need to do something for our infrastructure, not in a one or two year period, but over a decade.”
Others would note that this rating has not crumbled in just a few years, that despite many bridges and roads in need of repair, our infrastructure is still superior to even the most civilized nations.
Regardless of the reasons, most believe that Congress won’t touch this issue with a ten-foot pole, especially leading up to another Presidential campaign season starting next year.
“I think it’s too toxic and continues to be too toxic,” Steve LaTourette (the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner) tells The Atlantic. “I see no political will to get this done.”
Whether the time is fortuitous or not, and regardless of the positive side effects, many point to a fear of voters’ retaliation against any politician siding with a gas hike, so this matter going any further than the proposal stage is unlikely.
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