Appraisal Podcasts

The last few years have created a situation where consumers had plenty of cash (or available cash) to spend. Home equity financing was generally growing and this created a situation where many homeowners tapped into their equity to fuel spending. In 1995, the lowest levels since 1993, the total cash out equity was approximately $11.2 billion. This grew to $243 billion in 2005, although it is expected to drop off for 2006 and 2007 based on the Freddie Mac data.

I wondered what the future may hold for the retail market and since we all know retail is tied to household spending, I thought it would be interesting to correlate the two. Consumer spending accounts for about two-thirds of US economic activity so it is a critical element to understand.

A new report entitled: “U.S. Online Retail Forecast, 2005 to 2010,” by Jupiter Research forecasts that online retail spending will increase from $81 billion in 2005 to $95 billion in 2006, and will grow to $144 billion in 2010. According to this report, the key driver of online sales growth beyond 2006 will shift from obtaining new buyers to increasing the spending of existing buyers.

By 2010, 71% of online users will use the Internet to shop compared to 65% in 2005, however, online retailers will find it difficult to find new non-buyers to convert. Online retailers will rely heavily on existing online shoppers to spend more than compared with previous years.

The report also reveals that the Internet will influence nearly half of total retail sales in 2010, compared to just 27% in 2005. This projection combines total sales transacted online with those carried out off line but encouraged by online research. These offline sales will grow at a faster rate than online sales over the next five years.

Will there be money available for all this shopping?

I reviewed data available from Freddie Mac and a website called economy.com to develop the following graphic. It does appear that as cash-out financing goes so does the rate of retail spending. For a large graphic left-click the image.

WSJ.com - Bursting Tech Bubble, Higher Housing Costs Send People Packing

The Wall Street Journal reported on April 20, 2006 that there is an exodus of people from technology hub cities like the San Francisco Bay area and Boston. The outflow appears to be accelerating as housing costs continue to rise.

This phenomenon is not just impacting tech cities. It is combination of job opportunities and lower home ownership costs that is leading the charge.

Follow this link for the complete story from the Wall Street Journal Article.

I thought it might be useful to take a look at actual data from all of the MSA’s across the country and break it down into the top 10 gainers and losers in terms of population growth for the period between 2000 and 2005. I have also looked at these same top ten and bottom ten MSA’s for growth expected between 2005 and 2010 as well as historical data from 1990-2000.

This data was generated from the Site To Do Business Online (http://www.stdbonline.com) which members of the Appraisal Institute can join. This online data source can really assist in the understanding of the marketplace and the trends taking place. Not sure what is happening in the Greeley, Colorado MSA but it seems to have been consistently popular since 1990.

 
To help visualize this data set, I have developed the following chart. Click on the graphic for a larger version. This chart was created using Microsoft Excel and the data export feature in STDB.

Freakonomics Blog » Fresh Bagels Hot Off the NBER Press

I am a huge fan of the book Freakonomics by author’s Steven D. Levitt and Stephen J. Dubner. On their blog, http://www.freakanomics.com/blog they point to a study that expands upon the bagel man mentioned in their book.

From their blog they state:

A while back, Levitt and I wrote an article about a former economist in Washington, D.C., who sells bagels and donuts on an honor-system payment scheme. We later adapted that article for inclusion in Freakonomics. Now Levitt has posted a National Bureau of Economics working paper that looks at the Bagel Man’s profit maximization, an important element that we didn’t look at previously. (We were focusing on honesty and theft.) Here’s the money quote:

Using thirteen years of data representing more than 80,000 deliveries, I find that the company is extremely adept at determining how many bagels and donuts to deliver to a particular customer on a given day. In stark contrast, the company appears to price on the inelastic portion of the demand curve for the entire period, thereby foregoing a substantial share of available profits. I argue that these results generalize well beyond this particular case study: firms are likely to be close to the efficient frontier on dimensions for which there is frequent and informative feedback regarding profits, but absent that feedback, systematic deviations from profit maximization are more likely.

I recommend you add the feed to their blog to your RSS reader. Good stuff.

Catalyst of Change Report

The link above provides access to a written report in pdf format as well as a companion PowerPoint. Both are an interesting read about changes that a planning team for NAR see coming down the pike.

A brief summary of the report is outlined on Page 1 of the report as summarized below.

“The Strategic Issues Work Group of the National Association of Realtors®’ Association Executives Committee was charged with identifying emerging trends and issues that are likely to impact the real estate industry in the near future. The goal was to prepare a document that will assist real estate associations, brokers, sales associates and affiliated professionals in their strategic planning. The work group held a series of structured discussions in January 2006 with brokers from a variety of business models, top real estate sales associates and consultants familiar with industry trends. For reasons of confidentiality, the names of those participants are not included in this report; however, their comments are cited as direct quotations.

The result of those discussions is this report, which covers:

• Executive Summary: The Consumer: Catalyst of Change

• Consumer Trends: Autonomy vs. Service

• Market Trends: A Return to Stability

• Technology Trends: Empowering All the Players

• Brokers’ Response: A Growing Segmentation

• Agents’ Response: Standing Out from the Crowd

• Conclusion: Who Will Define Our Future?

There was consensus on many points but strong opposing opinions in others. Rather than try to decide which trend will succeed, the report presents them all, even if they are contradictory in a few areas. Time will resolve these debates. As with our previous reports in 2001 and 2003, this examination of strategic trends draws no conclusions and makes no recommendations. Any action you take as a Realtor®, association executive or other affiliated professional must be your own decision, based on your own unique market and skills.”

I started wondering what kind of activity this site is generating and I looked over the logs. A lot of you are coming by here and I appreciate that. I hope that you are finding something useful. Here is a graphic of the top 30 countries that are accessing this site.

PCWorld.com - Windows Tips: Great Freeware Squeezes More Out of Windows

PCWorld developed a list of the 10 best freeware programs to help you in your computing life.

Take a look and see which ones may reduce friction in your life.

Seven in 10 Consumers Expect Housing Bubble to Burst

Gallup Poll in association with Experian polled U.S. Consumers about their feelings on the market. Follow the link for an analysis of their findings.

In part, the article states:

“Housing has been one of the key drivers of economic activity in the United States over the past several years. Building new homes not only creates jobs but also stimulates the purchase of a variety of consumer durables including appliances and home furnishings. More importantly, the growth of housing equity has had a pronounced wealth effect not only on consumer spending, but also on consumer borrowing.Currently, the housing sector is under assault from the double-whammy of increasing interest rates and surging energy prices. As might be expected, housing activity is slowing as consumers pull back from making major long-term commitments in the face of such economic pressures. “

MSN Money - The negative equity epidemic

All those ARMs and teaser rates are coming home to roost. 1 in 10 homeowners has no equity or is even ‘upside down.’

Many of these homeowners may soon face a “can’t pay, can’t sell, can’t refi” situation that could lead them to lose their homes.

Consider the following from the story:

Nearly one in 10 households with a mortgage had zero or negative equity in their homes as of September 2005, according to First American Real Estate Solutions, an arm of title-insurance company First American Corp. The study of 26 million homes in 36 states and the District of Columbia found that one in 20 home borrowers was upside-down by 10% or more.

The situation is even grimmer for recent borrowers. Of those who bought or refinanced homes in 2005, 29% had zero or negative equity, and 15.2% were underwater by 10% or more.

Interest rates on about a quarter of all mortgage loans outstanding, or $2 trillion, are scheduled to reset this year and next, according to Economy.com. Homeowners who opted for extremely low teaser rates in recent years could see their payments eventually double, said Christopher Cagan, First American’s director of research and analytics.

Defaults and foreclosures are already on the rise, thanks in part to higher interest rates, cooling real-estate markets and overextended borrowers. Nationally, 117,259 properties entered some stage of foreclosure in February, according to foreclosure-monitoring firm RealtyTrac, a figure that’s up 68% from February 2005.

Follow the link for more on this story.

From two recent news releases from the National Association of Home Builders, it is clear that the housing market is cooling and that builder confidence is waning.

The pace of new-home construction continued its orderly cooldown in March, dipping 7.8 percent for the month following a temporary surge earlier this year caused in part by unseasonably pleasant winter weather across the nation.

Total housing starts dropped to a seasonally adjusted annual rate of 1.960 million units in March, according to figures released by the Commerce Department. The rate of construction for the first quarter of 2006 was 2.131 million units, the strongest pace for any quarter of the current economic expansion.

Single-family housing starts were down 12.0 percent for the month to a pace of 1.591 million units. The first quarter average was an economic expansion high of 1.749 million units.

“Builders are seeing a softening in demand because of rising interest rates, affordability issues and a reduced presence of investors/speculators in the housing market,” said David Pressly, president of the National Association of Home Builders (NAHB) and a home builder from Statesville, N.C. “Builders understand that the market is cooling off from the frenetic pace of the last several years and are adjusting accordingly.”

Rising mortgage rates, continued affordability issues and subsiding demand from investors/speculators are prompting single-family home builders to adjust their perspectives on the new-home market, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for April. The HMI declined four points from a downwardly revised reading in the previous month to hit 50 for the latest report. A reading of 50 indicates builders’ views about the market were evenly balanced between good and bad. The March index was revised lower to 54 from 55 previously.

The survey shows builders are somewhat optimistic about the current sales climate and about sales in the next six months. But the traffic of prospective buyers at developments isn’t hopeful.

“With mortgage rates back up to the 6.5 percent range and serious affordability issues in the highest-priced markets, today’s HMI numbers are neither surprising nor alarming,” noted NAHB Chief Economist David Seiders. “Indeed, a reported reduction in home buying by investors/speculators in the market for new single-family homes is a positive development.
Furthermore, we expect solid growth in employment and household income to essentially offset the minor increases in the interest-rate structure that we’re projecting for the balance of this year.”“The sizeable declines in housing starts for March partly reflected a return to more normal weather patterns, but it’s clear that builders are adjusting their production levels to the lower levels of demand evident in the market,” said NAHB Chief Economist David Seiders.

“We should see some further declines in starts as the year progresses, but we’re expecting an orderly transition to more sustainable levels rather than an abrupt housing contraction,” Seiders added. “NAHB expects housing starts to decline by about 6 percent for 2006 as a whole, mainly because of a reduced role for investors/speculators.”

All four regions reported decreases in housing starts for the month. Construction of new homes and apartments was down 0.5 percent in the Northeast, 8.2 percent in the Midwest, 4.8 percent in the South and 15.5 percent in the West.

Multifamily housing construction increased by 15.7 percent for the month to a seasonally adjusted pace of 369,000 units, and the average for the first quarter was a robust 382,000 units.

Issuance of total building permits decreased 5.5 percent in March to a seasonably adjusted rate of 2.059 million units for the month. Single-family permit issuance was down 6.9 percent to a pace of 1.542 million units for the month. The pace of multifamily permit issuance decreased 0.1 percent to a pace of 517,000 units for the month.

Focus on Small Loans and Affordable Rental Housing Leads to Strong Year

Fannie Mae announced early this year that the company, through its lender and housing partners, participated in financing $25.6 billion in multifamily rental housing in 2005, the second best year of investment for the company. Fannie Mae’s multifamily financing solutions include debt financing through lender partners and investments in Low Income Housing Tax Credits (LIHTC) through syndication partners.

Production of small loans, defined as loans of up to $3 million or as high as $5 million in certain areas, increased 53 percent over 2004 to $5.2 billion. Multifamily Affordable Housing, which provides financing for rent-restricted properties for people earning 60 percent or less of median income, invested $3 billion in 2005. Production includes bond credit enhancements.

“Fannie Mae worked closely with its lenders and housing partners in 2005 to improve delegation and enhance the products that help us deliver financing to the markets that need it most,” said Richard Lawch, Fannie Mae’s senior vice president of Multifamily Lending & Investment. “The shortage of affordable rental housing in high-cost areas is an ever-increasing issue, and Fannie Mae and its partners stand ready with the financing solutions to help address it.”

More than 90 percent of the units financed by Fannie Mae in 2005 are affordable to families at or below the median income of their communities. Approximately 59 percent of all multifamily units financed by Fannie Mae were reserved for special affordable (low- and very-low income units), and nearly 62 percent of all loans were made in underserved markets and areas. Fannie Mae committed a record $1.8 billion in equity investments that qualify for LIHTC, maintaining its position as the largest investor in LIHTC.

Fannie Mae Delegated Underwriting & Servicing (DUS) lenders delivered $19 billion of the total multifamily financing issued in 2005. An additional $1.9 billion in debt financing was generated by MFlex® lenders, who typically finance small multifamily developments.

Fannie Mae continued to enhance products to meet changing market needs. RCG Longview, a New York City-based real estate opportunity fund manager, and Fannie Mae made available Fannie Mae’s DUS Plus product, which allows lenders the flexibility to offer additional mezzanine financing in conjunction with conventional Fannie Mae fixed-rate DUS loans which are between $3 million and $25 million. On the affordable front, Fannie Mae made available the Unfunded Forward Rate Lock Commitment. This option enables borrowers to lock the interest rate and establish other key provisions of the permanent mortgage up to 24 months in advance of completing construction or substantial renovation of properties designated by state housing finance agencies as eligible for “9 percent LIHTCs.”

In addition, Fannie Mae’s multifamily assets, consisting of multifamily mortgages purchased for cash, multifamily Mortgage-Backed Securities (MBS), investments in LIHTC, and other assets, now total over $124 billion.

A partial listing of the Fannie’s National DUS lenders is shown below:
(list obtained from http://www.multi-housingnews.com)

American Property Financing, Inc., 6 East 43rd Street, 26th Floor, New York, NY 10017; (212) 850-4200

AmeriSphere Multifamily Finance LLC, One Pacific Place, Suite 130, 1125 South 103rd Street, Omaha, NE 68124-1071; (402) 498-9184

Arbor Commercial Funding LLC, 333 Earle Ovington Blvd., Suite 900, Uniondale, NY 11553; (516) 832-8002

ARCS Commercial Mortgage Co., LP, 26901 Agoura Road, No. 200, Calabasas Hills, CA 91301; (800) ASK-ARCS

Bulls Capital Partners, LLC, 8330 Boone Boulevard, 8th Floor, Vienna, VA 22182; (703) 848-8001

CharterMac Mortgage LLC, 625 Madison Avenue, New York, NY 11501; (800) 831-4826

Collateral Mortgage Capital, LLC, 524 Lorna Square, Birmingham, AL 35216; (205) 978-1840

Column Guaranteed LLC, 3414 Peachtree Road, NE, Suite 400, Atlanta, GA 30326; (404) 239-5353

CWCapital LLC, One Charles River Place, 63 Kendrick Street, Needham, MA 02494; (781) 707-9300

Deutsche Bank Berkshire Mortgage, One Beacon Street, Suite 1400, Boston, MA 02108; (617) 556-8128

EF&A Funding LLC, 4746 11th Ave., NE, Suite 102, Seattle, WA 98105; (800) 522-6865

GMAC Commercial Mortgage Corp., 200 Witmer Road, Horsham, PA 19044; (215) 328-3377

Green Park Financial LP, 7501 Wisconsin Avenue, Suite 1200, Bethesda, MD 20814; (301) 215-5500

Greystone Servicing Corp. Inc., 7200 Wisconsin Avenue, Suite 1001, Bethesda, MD 20814; (301) 656-6543

HarborPoint Capital, LP, 5151 Belt Line Road, Suite 725, Dallas, TX 75254; (972) 383-2121

HomeStreet Capital, 2000 Two Union Square , 601 Union Street, Seattle, WA 98101-2326; (206) 389-7750

HSBC Bank USA, National Association, 452 Fifth Avenue, 24th floor, New York, NY 10018; (212) 525-5000

ICM Capital, LLC, 195 Montague Street, Brooklyn, New York 11201; (718) 722-5604

Key Bank Real Estate Capital Markets, Inc., 8115 Preston Road, Suite 500, Dallas, TX 75225; (214) 750-0909

MMA Financial, LLC, 621 E. Pratt Street, 3rd Floor, Baltimore, MD 21202; (443) 263-2900

M&T Realty Capital Corporation, Mail Code 101-617, 25 South Charles Street, Baltimore, MD 21201; (410) 545-2411

Prudential Mortgage Capital Company, 8401 Greensboro Drive, Suite 200, McLean, VA 22102; (703) 610-1400

Red Mortgage Capital, Inc., 1750 Presidents Street, Suite 300, Reston, VA 22090; (800) 337-2622

Reilly Mortgage Capital Corp., 2010 Corporate Ridge Drive, Suite 1000, McLean, VA 22192; (703) 760-4700

Wachovia Securities, 700 North Pearl Street, Suite 1700, Dallas, TX 75201; (214) 397-4717

Washington Mutual Bank, 3200 Park Center Drive, Suite 200, Costa Mesa, CA 92626; (714) 957-2393