A survey of 188 home building executives last month turned up a very
interesting, and disturbing, finding.  More builders are shying away from
selling homes to Vets because VA appraisers have become so conservative
that the homes rarely close.  In addition, the low appraisals impact the
value of future community sales, costing the builders significant money.
Particularly disturbing are some of the VA procedures that make it
difficult to challenge mistakes, as well as the impact the appraisals are
having on other homes available for sale in the community.

The appraisals required to close VA loans are intended to protect veterans
from overpaying, but end up preventing many from buying the homes they
want.  When the appraised value comes in significantly below the
contracted sales price of the home, and well below the appraisals for FHA
and conventional loans for like homes, builders are likely to cancel the
sale.  Because of the timing, veteran families can be devastated by a
cancellation of their home purchase only days before their scheduled
closing and move-in.

Across the country, builders tell us the VA appraisal program is broken,
and so frustrating that some may eliminate sales to buyers using VA
financing. The fact that the low VA appraisal affects a community’s sales
for six months adds insult to injury.  Builders shared these common
complaints about the VA appraisal process:
1)      Appraisers lack market knowledge – Builders see a higher
incidence of VA appraisers from outside the metro area, and who
lack local market knowledge and experience.  This rarely occurs
for appraisals supporting FHA and conventional loans.  A builder
stated in our monthly survey “The biggest problem has been with
incompetent appraisers that are on the VA approved appraiser list.
We’ve seen significant FACTUAL errors.”
2)      VA appraisals take longer – The appraiser typically has 14 days
to establish the value, and the VA appraisals tend to come in at the
end of this period, while appraisals for FHA and conventional
loans come in faster.  The timing is a problem because it is so close
to the closing and moving day.
3)      Focusing on the lowest comps, not most relevant – The VA
appraisers focus on the lowest comparable sales within the range
they were given or researched, often ignoring more relevant comps
that support a higher price.  They may also ignore adjustments to
the comps to account for differences that support a higher value. A
survey participant added “The appraisal issue is mainly with VA
appraisals.  The values are coming in at the low end of the comps;
the appraisers don’t use an average. We are considering
restricting VA sales.”
4)      No value given to options – The VA appraisers refuse to assign
any value to the options buyers have selected, if they don’t add
space.  This refusal used to be limited to more unusual options and
upgrades, but now seems to be across the board.
5)      A feedback gap – The VA appraiser is required to notify the lender
of a low value that doesn’t support the loan at least three days prior
to closing, but not the scope of the gap.  The builder can rush
around finding additional comps, with a very low likelihood of
impacting the final result.  For FHA and conventional loans,
builders see the whole appraisal with an opportunity to point out
errors and provide additional information.
6)      Effectively no way to correct or modify the appraisal – The VA
appraisal is final by the time the builder and lender receive it, and
the process to refute the value or correct factual errors is
ineffective.  The builder or lender has to appeal to the Department
of Veterans Affairs, which takes a minimum of 60 days and rarely
results in a change in value.  One builder adds “You can’t go to a
second lender if you get a low appraisal on a VA.”
7)      Low value impacts all appraisals for the next 6 months – The
builder is stuck with the low appraised value at that community for
6 months, and the value impacts the FHA and conventional loan
appraisals as well.  Realtors and resale home sellers also complain
about this, and sometimes will resort to delisting a home until the
clock runs out.  The dollars can be significant.  In one recent
example, an appraisal was short $11,000 or 8% on a $138k
California home.  Another appraisal was $14,000 off an affordable
Washington D.C. townhome, and the builder has seen appraisals
$60-70k short for detached homes.  In both cases, using average
comps instead of the lowest comps would have established the
needed value to close.
8)      Lenders can’t avoid specific VA appraisers known for lowball
values – Lenders have some say over which appraisers within an
assigned panel will be used for FHA and conventional loans, but
no input regarding VA appraisers.  The lender and builder can both
get stuck with a string of loan applications that won’t close, costing
time and money.

Builders point out that veterans do the same diligence in assessing housing choices as other buyers, and are willing buyers at the contracted prices.
Qualified families want to buy with VA financing because they can do so
with no down payment or mortgage insurance premiums. As a result, only
a small percentage can be redirected into FHA programs to successfully
complete the home purchase.

The VA appraisers believe they are protecting veterans from overpaying
for homes, and have stated this to our builder contacts.  We believe they
are also interested in protecting the agency, and ultimately taxpayers, from
losses that could arise from these no down payment loans.  We contacted
managers at the VA home loan program, who stated they are not permitted
to address our concerns.

John Burns  is a Real Estate Consulting performing U.S. Building Market Intelligence and receives attribution for this post.

STAT 2011 Year in Review.This report focuses on the state of the Valley’s recovery over the last twelve months, placing the gains and losses over the year in perspective. Overall, the tale is positive

SALES
Sales rebounded in 2011 enthusiastically, topping out at 101,436, the second highest total sales of the decade. It was surpassed only by 2005 with 104,725 sales, at the height of the real estate bubble. STAT and other conventional wisdom have focused on late mid 2002 and 2003 to mid 2004 as our last normal markets.1 Total sales for 2002, 2003 and 2004 were 67,950, 80,052 and 98,922 respectively, and 2011 compares favorably.

INVENTORY
Total new listings in 2011 (121,041) fell slightly below the 2002 figure of 125,738. Correcting itself from the decade high 173,363 after the housing bubble burst in 2006.

FORECLOSURES PENDING
Foreclosures pending, which fuel the Valley’s foreclosure sales, reached their pinnacle in November 2009 at 50,568, and finished 2011 at 19,979, 60.49% below the decade high. The average foreclosures pending per year stubbornly held at 44,237 and 44,698 for 2009 and 2010. In 2011 it took an abrupt downward turn all year.

DISTRESSED SALES
Distressed properties as a percent of sales started the year at 70.2%. Despite a series of hic-cups in direction over the course of 2011, it crashed through the 60% barrier the last two months of the year, at 59.4% and 59.8% respectively. Not only did the percent drop 10.4% over 2011, but the short sale to foreclosure mix shifted by year end, to see short sales over- take foreclosures for the first time, albeit by a small amount.

PRICING
Pricing remains the last bastion of resistance to the Valley’s recovery. Both List and Sales median and average prices showed very little movement over the course of 2011, stagnating at the presumed bottom. Median List price started 2011 at $124,900 and finished the year not much higher at $129,900. Average List price followed the same pattern, starting at $204,300 in January and finishing in December at $200,200.
Sales pricing mimicked the same lackluster performance of List pricing. Median Sales price began with $110,000 and ended 2011 at $117,000, well below the median List price. Average Sales price in January was $157,000 and ended at $162,200. All four pricing metrics, List and Sales, took a full twelve months to go practically nowhere. On a positive note, given how long pricing has stalled, the Valley’s pricing has probably hit bottom. What is in dispute is how long it will stay there.
Pricing cannot correct itself until the forces of supply and demand4 equalize. Both List and Sales pricing are cur-rently unduly influenced by the large numbers of distressed properties that compete for buyers. The slowing of foreclosures pending, if continued at the current rate, should stabilize in 2012, leading to a gradual decline to normal levels of foreclosures in the active property pool. Likewise, growing lender appetite for short sales over foreclosure will also diminish foreclosure influence on pricing.
National predictions on home prices are a slow but steady upward climb in 2012.5 Given 2011’s underpinning metrics (inventory, sales, MSI and foreclosures pending), the Valley’s pricing is poised to gain traction in 2012.

UNEMPLOYMENT and JOB GROWTH
Phoenix Metro started the year with a 9.28 unemployment rate,2 with the rate’s overall trend line for 2011 downward. Preliminary figures for November are estimated at 7.7%3, a drop of 1.58% from January, wetting our appetite for the December’s final. Arizona ended 2011 as a top ten growth state, now adding jobs faster than the national average.6

THE 2011 FINAL TALLEY
In the 2011 “gaining momentum” column, STAT places unit sales, total inventory, market wide MSI, falling DOM, declining foreclosures pending, distressed property’s falling % of sales, falling unemployment and job growth. In the stagnant “needs improvement” column, STAT cites all four pricing metrics: median and average List and Sales prices. In the loss column, STAT sees little that is moving in the wrong direction.
All in all, 2011 was a pretty good year on the road to recovery.

STAT 2011 Year in Review is produced by ARMLS and is reproduced in total including the following foot notes.

1 http://content.yudu.com/A1s4h3/JuneJuly2011/resources/index.htm?referrerUrl=http%A%F%2Fwww.armls.com%2Fnews%2Fwave-ezine
2 EBEller Online
3 US Bureau of Labor Statistics
4 http://en.wikipedia.org/wiki/Supply_and_demand
5 http://www.kiplinger.com/magazine/archives/where-home-prices-are-headed.html
6 http://knowledge.wpcarey.asu.edu/article.cfm?aid=1115

As of December 2011, the median home sale price again increased, the number of foreclosures and listings declined, and monthly sales reached a near record pace in metro Phoenix.

The median price of a metro Phoenix home rose to $117,000 in December, its highest level since November 2010 and the first December since 2005 that the median price didn’t decline. 

Foreclosures pending declined to less than 20,000 or 60% below the high of 50,568 in November 2009.  Only 9% of listed homes were lender-owned foreclosures, compared to 20% a year ago. 

The number of new listings in December declined to 7,339 from a high of 12,312 in March.  Total inventory declined 42% to 24,712 from a high of 42,881 in January. 

Months supply of inventory (MSI), declined to 3.2 months or 16% lower than November and 80% lower than December 2007, when MSI was 16.0 months.  The number of sales in December rose 10% over November to 7,840.  The total number of homes sold in 2011 was nearly 95,000, the highest level since the market peaked in 2006.

Multiple offers (often 15-20) and over-biding on the more desirable properties is the norm.  Investors are snatching up both foreclosure and short sale properties at a record pace.  Owner/occupant buyers needing financing are over-bidding listed prices in order to compete with all-cash investors.

Because Home Owners Associations have in the past been caught by dues deficiencies due to vacancies and foreclosures. They have been forced into attempting to recover fees and adjusting fees upwards to make up for it. As usual abuse occurs so it is then time for legislation to institute new rules and laws. These changes are the result of the most recent version.

1. HOAs can only charge up to $400 for preparation of documents for resale (CC&Rs, By Laws, etc.).

2. If the HOA is currently charging less than $400, they can only raise the fee up to 20% per year to reach $400.

3. The $400 preparation fee does not include any transfer fee, community enhancement fee or other fees charged by an HOA for resale.

4. The $400 fee can only be collected at the close of escrow, and not before (HOAs can no longer hold the documents hostage and require up-front payment).

5. If no close of escrow occurs, the HOA can’t collect their fee.  If a transaction cancels, they can’t charge another fee on the next transaction.

The rumor mill believes that #5  may be challenged by some HOA lawyers.  At least one HOA law firm in particular feels that an HOA can charge the seller (at COE) for as many times they prepared the documents for different buyers even if those buyers cancelled.….Time will tell

The Financing Flip Requires Preperation

Last week the guidelines for FHA flips were revised.  With that update came numerous questions about the flip guidelines for Conventional loans.  First of all – lets  address a question on flip properties

Q: What date do you use to determine if a property is a flip or not?  The date the Deed was recorded or the auction date?

A: Some underwriters use the auction date when the recorded instrument is a Trustee Deed.  Some banks use the date the deed is recorded – this is an important question to ask upfront.

Conventional financing on a Primary Home with a  credit score as low as 660 with 5% down is available.

Conventional mortgage insurance companies requirements on  a flip purchase to:

1. Seller must be owner of record
2. No back-to-back, simultaneous closings, or double closings are allowed
3. Increases in the property value must be explained, documented and supported by an appraisal AND
4. Improvements and renovations must be substantiated with receipts, contractor invoices, building permits or other documentation and reflected by the appraiser

Conventional loans do not require 2 appraisals like FHA. However it is a good idea to perform the two following actions

1. The lender must obtain receipts for improvements from the listing agent or seller ASAP to provide the appraiser before the appraisal is completed
2. The appraiser is required to note that improvements he/she has receipts for were completed and the increase in value is supported.

The term investor is most often misused when it comes to real estate. The apparent opportunity is often under calculated and the gain is undefined. This is not investing it’ called gambling.

Many investors are unprepared, undercapitalized, and overwhelmed, all of which represent a recipe for failure.  By adhering to a few key rules, success in real estate investing is within reach. With the heightened number of short sale and foreclosure properties a new wave of novice investors have been lured into the market.

My suggestion is that you must study and understand the market.

•    Where are prices headed and how have they arrived at their current levels.
•    Track average supply and demand in the immediate area of the investment, accurately determine comparable properties rent or resell for in you target area.
•    Purchase with a complete plan in mind.  Most seasoned investors state that the “money is made” on the acquisition, not the resale.
•    Calculate the actual costs of the purchase in advance
•    Quantify the exit strategy, Commit to the holding duration and the costs associated
•    Calculate earnings during the holding period
•    What’s the strategy?  Will you sell to another investor, remodel the property, or use it as a long term rental

Clearly define the variable costs and expenses encountered during the process. Include management, vacancy, taxes and maintenance costs as well as potential legal costs.

Current values are high and prices are low. A  disciplined plan will insure your success.  If you are considering investing in real estate and would like assistance in developing your strategy feel free to contact me. I will review  your plan and share with you mine.  It’s good to share your real estate investment strategies this way with others I always find a new detail some how that I can implement

This article below was featured in the Calgary Sun Friday March 25th 2011. Myke was provided an ARMLS PPI index and a few other STAT charts to work with. We had a brief conversation and he chose to focus on the value and market timing displayed in those charts.
As winter drags on in Calgary, the idea of a second home in the Valley of the Sun becomes more appealing, and with the idea comes the question, “Have prices bottomed out in the Phoenix area?”
The answer is a floating target, says Gary Peruzzini, a broker with Realty Sense in Phoenix.
“There’s never really an answer to that,” says Peruzzini. “What I can say is if you look at sales volumes and the volume of properties on the market, it would appear we have hit the bottom, but it’s really a function of supply, which is being controlled by the banks.”
Prices are being kept low because of a flood of foreclosures and short sales in the market – as the supply diminishes prices will rise, but the banks are holding distressed houses off the market and when those are released, prices will flatten or fall.
A good barometer of where prices are heading is the Arizona Regional Multiple Listing Service Pending Price Index (ARMLSPPI), says Peruzzini.
The report is a forecasting tool that predicts the average and median sales prices three months down the road, based on pending prices of properties in the MLS system for the metro Phoenix area.
“Predictions for the next 90 days for both median and average prices show a modest positive gain in 30 days, followed by increasing declines in 60 and in 90 days,” says the report dated March 4. “The median sale price is forecasted to rise to  $114,000 in March and then make an about-face to $109,000 in April and fall below $100,000 to $95,000 in May. The average sales price prediction follows a similar pattern.” (All prices in US dollars.)
The report cautions the accuracy of its index diminishes the further out to the future it forecasts, no doubt because of the uncertainty of future supply in the market.
Purchasing decisions should not be based on the metro average and median prices – there are eight cities of reasonable size in the Phoenix area and prices vary greatly.
The median price in Phoenix, year-to-date to March 10 was $100,000.
In Scottsdale, north of downtown Phoenix, the median was $375,000. In Chandler and Gilbert, to the southeast, the median prices were $179,900 and $178,000 respectively. In Glendale, to the west, the price was $110,000.
All prices showed downward pressure from February to March, as they did on a year-over-year basis, but not the significant drops of 2007 to 2010.
Is a housing recovery in sight?
“It’s much the same as trying to predict the bottom,” says Peruzzini. “I’ve been through downturns (before) and when the upturn happens, it happens rapidly…depending on how depressed it is. (These) things are relative to the ability to finance and financing is a problem right now.”
The general consensus is a second home in the Phoenix area – or anywhere in the U.S. – should be considered first as a place to escape the snow, with any return on investment many years away.

Article produced by MYKE THOMAS-Homes Editor – Calgary Sun

The nation’s second largest mortgage company says early workouts are planned. This “early detection” process may be key to getting in front of delinquencies.

Graphic John Pluta

Detection before the foreclosures,  Freddie Mac says it’s making changes to the way it evaluates the performance of mortgage servicers in order to ensure problem loans are tackled early on and increase the odds of getting borrowers back to performing status. The blog post, Anthony Renzi, EVP of Virginia-based Freddie Mac, explained that the GSE is retooling its 15-year-old Servicer Performance Profile. “How early? I’m talking about making contact by the third day of delinquency,” Renzi states.

The new metrics will emphasize “the human connection” – early and frequent borrower contact to keep the loans current or determine the issues within the first 30 days of default, he said. 30-day delinquent loans from becoming 60-day or 90-day delinquent loans, such as workouts and collections. A large portion of the servicer score card will be how servicers organize themselves to support early borrower contact. The remaining 40 percent of the scorecard, will be related to data integrity, according to Renzi. the new servicer scorecard is scheduled to be rolled out by the end of the year.

What this article is about is actual collection and servicing procedures’ to protect the investors assets. Should we as consumers be concerned about the investors’ assets. My thoughts are hell yes! The GSE’s are bleeding red ink. If borrowers pay for their mortgages the tax pay won’t have to pick up the slack. If the foreclosure is eminent then lets get these properties in the hands of who ever can pay for them other than the servicers.

Is this an optimistic opinion? probably so. So many of the defaulting loans are due to the strategic decision to stop paying for them rather than the inability to pay for them. The borrower is making a business decision relating to the cost of their housing. For those that strategically foreclose the decision which is being made is based on paying half as much to rent the home or repurchase a new one compared to the existing cost of the mortgage. In most cases it’s going to be better for the borrower to perform a short sale and this is were the GSE’s can  contribute. They need to get short sales deals done quickly and efficiently…now that’s the real solution!

Using several data sources to assist me in providing accurate data to my clients the MLS is one of these sources. All data sources gather scrub (or not) their data differently.

The Cromford Report has been added to my tool kit for some time now as the local MLS provider has added it to their arsenal as well, this report provides up to the minute statistics on home sales in Metro Phoenix and the surrounding  areas. It is a very comprehensive report on where the market is and where it is headed. This report allows you to “look into the crystal ball” of the market. I find it an invaluable resource to be used in this market.

A couple highlights I would like to present to you are:
“Demand is nevertheless showing some small signs of relative strength since pending listings are up slightly (4%) month to month. ”

“Supply continues to grow steadily, with overall active listings up by 2.7% from the prior month. Almost all this growth is concentrated in the price ranges below $200,000 where the supply position is starting to look more excessive than it has for the last two years.”
Here is what I gain from reading this -
Active listings have increased in the under $200k price range.

Pricing has stabilized, meaning that the value that you determine today should remain the value in the short term.

Pending listings are up which is always an indicator that demand is rising.

Like all statistics the interpretation is the key . Is this a good time to buy a home. Well if you need one to live in I would certainly think so. Those that can qualify have very positive interest rates in their favor.

Ok so here it is, the foot in the mouth opportunity! This is how I see it. Historically when a housing market turns down the fall takes about 4 years to occur, for the majority of the decline. I believe this has happened.

Nationally we have roughly 2-2.5 million properties available for purchase at any given time. The annual absorption rate (population growth) is at about 1.3 million  homes annually.

The total amount of homes projected to be nonperforming is around 8 million homes. In other words if we take all of the properties that are in foreclosure or will be in foreclosure this is projected to be 8 million units. The Fed and the banks have been leaking inventory on to the market to stretch this period out so as to stop housing depreciation.

So what is your conclusion? Mine is that we will be in a flat market for the next 3-3.5 years while we work of the inventory. Keep in mind that there are conditions which can effect this matrix. For example interest rate, new jumbo loan programs,  political policy and employment may all effect this arrangement. We simply have more supply than demand.

Canadian home buyers within Maricopa County accounted for 4.2% of the total new and resale homes purchased in June 2010 in comparison to 4.1% by purchasers from California, according to records tracked by The Information Market. This represents a significant increase from the low average of 0.2% of sales volume from 2003 to 2006.
This period of parity between Canada’s “loonie” (dollar) and the submarket’s affordable home prices, is creating a unique and attractive opportunity for Canadians to own real estate in the Valley of the Sun.

Fueled by a strong Canadian dollar, which reached a high against the U.S. dollar in July 2007, and increasingly affordable Phoenix housing prices, down 51% since the previous peak in 2006, many Canadians are seeing an opportunity to taking advantage of these favorable market conditions and are purchasing second/seasonal homes. Many of these home buyers are reported to be purchasing with all cash.

This information source is John Burns Real Estate Consulting, Inc located in Irvine California. The firm specializes in regional real estate consulting and home building consulting and statistical data. The origination of the data is through the local MLS and tax history data bases. This data is utilized by many different entities both public and private to  comment on the state of the Real Estate Market.

What does this information mean to you. Well if you are a Canadian consumer quite a bit! The local market and the currency exchange rates (which you can track on this very site) make a purchase of Phoenix real estate very practical. To say nothing about contributing to your freezing winter experience in a warming way.

Don’t forget to search for your favorite type of property under the            MLS-SEARCH TAB.