Push to Cut Back on Home Appraisals Sparks Controversy – Chicago Tribune

Plan to Reduce Human Appraisals May Lead to ‘Wildly Inaccurate’ Estimates

~ Note from Bryan @ Appraiser Income, we need to get involved, please send emails!!!!! I have included the emails below:

Please send comments:

• E-mail: regs.comments@occ.treas.gov .  Include in subject line: “Docket ID OCC-2018-0038 and RIN 3064-AE87 – Real Estate Appraisals”
• E-mail: regs.comments@federalreserve.gov . Include in subject line: “Docket ID OCC-2018-0038 and RIN 3064-AE87 – Real Estate Appraisals”
• E-mail: Comments@FDIC.gov . Include in subject line: “Docket ID OCC-2018-0038 and RIN 3064-AE87 – Real Estate Appraisals”

One of the seemingly “mysterious” aspects of home equity conversion mortgages (Federal Housing Administration-insured reverse mortgages) is the determination of how much money the borrower will get. Three items go into the calculation: the age of the youngest borrower, the interest rate, and the maximum claim amount (the value of the home or FHA lending limit of $679,650, whichever is lower).

FHA periodically issues what are called “principal limit factors.” These are the percentages that FHA will lend based on the age of the borrower and the interest rate. The latest factors went into effect on Oct. 2, 2017. For a 62-year-old borrower, which is the minimum age to get a reverse mortgage, and at a rate of 5 percent, the factor is .410. The maximum claim amount is multiplied by this factor to get the amount the borrower will get before the closing costs are subtracted. So if the house appraised for $300,000, the borrower will get $123,000. At age 80, the factor is .534, so the starting point is $160,200.

“Now for the latest wrinkle. FHA issued a new rule as Mortgagee Letter 2018-6 to make sure that it’s receiving “an accurate determination of property value and property condition.” According to the new rule that went into effect for new FHA case numbers ordered on or after Oct. 1, 2018, FHA will now review all appraisals to see if they meet the administration’s collateral risk assessment. If it does not pass this test, they will require that a second appraisal be ordered from a different appraiser. Lenders can order it from the same appraisal management company.

The lower of the two valuations will be used for calculating the maximum claim amount for the loan. FHA plans to have an automated system to handle the collateral risk assessments by Dec. 1 of this year. This will reduce the time for the assessments to be completed. This entire new protocol will be evaluated after six and nine months, and then FHA will make a decision as to it’s effectiveness.

I still believe that home equity conversion mortgages (HECMs) can be a valuable tool to help seniors stay in their homes as long as possible, be a source of supplemental cash flow, or help establish a line of credit for future emergencies. There is just another step in the process.

Economists at Bank of America Merrill Lynch are phoning it in: The largest segment of the housing market has peaked.

According to a research note released on Friday, the research team led by Bank of America Chief Economist Michelle Meyer said, “We are calling it. Existing home sales have peaked.”

According to an article from Business Insider, sales of U.S. existing homes make up 90% of all home buying transactions and bounced back faster than the new home market after the housing crash.

Now, monthly sales have failed to rise about the benchmark of 5.72 million homes reached in November of last year.

Meyer says that was probably the high-water mark.

The reason for the peak, according to Meyer? Declining affordability. Go figure.

A rising interest rate environment coupled with rapidly rising home prices are putting a chill on buyer activity.

In response, Meyer says homeowners are beginning to make more aggressive price cuts on their homes to bring in buyers, which she says has moved the housing market from a positive force on the economy to a neutral one, according to the article.

“The outcome is that the housing market is no longer a tailwind for the economy but has yet to become a headwind. Call it neutral,” Meyer said.

Home Prices Less Affordable Than Historic Averages In 78 Percent of Local Markets;
30 Percent of Population in Markets Requiring $100,000+ in Annual Income to Buy a Home

IRVINE, Calif. – Oct., 4, 2018 — ATTOM Data Solutions, curator of the nation’s premier property database, today released its Q3 2018 U.S. Home Affordability Report, which shows that the U.S. home prices in the third quarter were at the least affordable level since Q3 2008 — a 10-year low.

The report calculates an affordability index based on percentage of income needed to buy a median-priced home relative to historic averages, with an index above 100 indicating median home prices are more affordable than the historic average, and an index below 100 indicating median home prices are less affordable than the historic average. (See full methodology below.)

Nationwide, the Q3 2018 home affordability index of 92 was down from an index of 95 in the previous quarter and an index of 102 in Q3 2017 to the lowest level since Q3 2008, when the index was 87.

Among 440 U.S. counties analyzed in the report, 344 (78 percent) posted a Q3 2018 affordability index below 100, meaning homes were less affordable than the long-term affordability averages for the county — the highest percentage of counties below historic affordability averages since Q3 2008.

“Rising mortgage rates have pushed home prices to the least affordable level we’ve seen in 10 years, both nationally and at the local level,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Close to one-third of the U.S. population now lives in counties where buying a median-priced home requires at least $100,000 in annual income based on our analysis of 440 counties with a combined population of 220 million. U.S. Census net migration data shows negative net migration in more than two-thirds of those highest-priced markets, while more than three-quarters of markets requiring annual income less than $100,000 to buy a home posted positive net migration, indicating that home affordability is at least one factor driving recent migration patterns.”
…continue reading the rest of this post: U.S. Home Affordability Drops to Lowest Level in 10 Years

Real estate economists continue to have a generally bullish outlook for the U.S. economy, capital markets, and real estate fundamentals. Overall, expectations have improved since the prior forecast in March 2018, and the strong second-quarter gross domestic product (GDP) growth rate of 4.2 percent was fresh in forecasters’ minds as they weighed in on future years. Based on this forecast, the U.S. economy will easily surpass the current record for length of expansion (120 months) in mid-2019.  Consistent with a strong economy, key real estate metrics—such as NCREIF Property Index (NPI) returns and transaction volumes—moved moderately higher in this survey. While expectations have improved, the survey was completed prior to recently announced tariffs by the United States and China that could curtail growth in 2019 and possibly beyond. While there are many potential outcomes for the current trade dispute, escalated tariffs with China could dampen the next round of forecasts in April 2019.

These results are based on the semiannual ULI Real Estate Economic Forecast, prepared by the ULI Center for Capital Markets and Real Estate, which will be discussed during a webinar and released later this week. The survey was completed in September 2018 by 45 economists/analysts at 33 leading real estate organizations.

Some of the highlights from the survey, which covers the 2018–2020 forecast period, include the following:

• U.S. GDP will grow by 3 percent in 2018, up from 2.8 percent in the last forecast. Assuming that growth hits this level, this will be the highest calendar-year growth rate of the current expansion. GDP growth is projected to stay strong in 2019 at 2.5 percent, while moderating to 1.7 percent in 2020 (down from 2 percent in the prior forecast).
• Net job growth should average 1.77 million per year through 2020, compared with a long-term average of 1.15 million. Compared with the last forecast, expected job growth is up in 2018 and 2019 and slower in 2020. Job growth is forecast at 2.4 million in 2018, higher than the past two years and falls to 1 million in 2020, possibly due to concerns about labor availability. The national unemployment rate is forecast to drop to 3.8 percent in 2018 and 2019, the lowest rate since 1969.
• Expected yields on the ten-year U.S. Treasury note fell slightly (10 basis points [bps]) compared with six months ago for both 2018 and 2019, somewhat surprising since the 2018 inflation rate moved up (to 2.5 percent). Forecast year-end (YE) yields are 3 percent and 3.3 percent, respectively, in those years. The 2020 yield is forecast to reach 3.5 percent in 2020 (up from 3.4 percent), close to the 20-year average of 3.6 percent.
• Real estate transaction volumes will decline slightly to $475 billion in 2018 (3 percent below 2017). The forecast for all three years is up from six months ago, with $450 billion and $415 billion projected for 2019 and 2020, respectively. Despite moderating since the cycle-peak transaction year of $569 billion in 2015, volumes are well ahead of the long-term average of $313 billion and equity and debt capital is readily available for most real estate investments.
• Expectations for commercial mortgage–backed securities (CMBS) issuance were stable. The consensus is for an average of $86 billion in new CMBS issuance over the next three years. This level of issuance is in line with 2017 ($88 billion) and ahead of the long-term average of $79 billion.
• Commercial real estate prices as measured by the Moody’s/RCA Commercial Property Price Index (CPPI) are projected to rise by a healthy 5 percent per year over the next three years (6 percent, 5 percent, and 4 percent, respectively), compared with the prior average of 3.4 percent and a long-term increase of 4.4 percent. As of July, the CPPI Index is up 7 percent year over year, so the 2018 forecast looks achievable.
• Rent growth expectations for the next three years rose for hotels (revenue per available room [RevPAR]) and apartments and fell for other property types. Industrial rent growth will lead all property types with 2018–2020 growth averaging 3.2 percent, followed by apartments (2.5 percent), hotels (2.3 percent RevPAR growth), office (1.7 percent), and retail (1.3 percent). We note that except for industrial, rental growth for all property types will be below forecast inflation rates.
• Over the next three years, national vacancy or availability rates are forecast to rise modestly for all property types, as solid demand is matched by increased supply. The apartment vacancy rate will increase to 5.2 percent in 2020 from 4.9 percent at YE 2017, consistent with the prior survey.  Industrial availability will be 7.5 percent in 2020, barely higher than in 2017 and well below the long-term average of 10.1 percent. The office vacancy rate will increase by 60 bps over the next three years, ending 2020 at 13.6 percent. Finally, retail availability will finish 2020 with 9.8 percent vacancy, an increase of 20 bps over 2017.
• Forecast returns as measured by the NCREIF Property Index (NPI), which tracks core unleveraged institutional properties, have improved compared with the prior update. Total returns are forecast at 6.5 percent, 6 percent, and 5 percent for 2018, 2019, and 2020, respectively. Much of the forecast return will come from income, which is forecast at 5 percent in 2018 and rising to 5.3 percent in 2020. Industrial will continue as the strongest property type, with an average total return of 9.2 percent through 2019, compared with 5.8 percent for the overall index. All other property types will trail the index, with average returns of 5.5 percent for apartments, 5.1 percent for office, and 4.1 percent for retail. The retail return implies negative appreciation as the sector continues to face headwinds from e-commerce.
• Equity real estate investment trust (REIT) returns are the one area where forecasters moved to a more pessimistic stance, with lower return expectations compared with the spring forecast. The NAREIT composite is forecast to average 4.1 percent from 2018 to 2020, about 150 bps lower than the prior forecast and well below the 20-year average of 10.8 percent. While REIT returns often diverge from private real estate in the short term, the current ULI forecast predicts six years (2015–2020) of underperformance relative to private return indices.
• The single-family housing construction outlook weakened over the past six months, with starts forecast to rise to 900,000 and 930,000 units in 2018 and 2019, respectively, before slipping to 900,00 units in 2020, all years below the long-term annual average of almost 1 million homes.

In summary, respondents to the October 2018 ULI Real Estate Economic Forecast have become increasingly optimistic over the past six months for the first two forecast years. Strong GDP and job growth in 2018 have set the stage for solid real estate demand and absorption, particularly for the rest of 2018 and in 2019. Forecasters have signaled slowing—though still positive—growth in 2020, which could be due to a respite from the tax cut–led growth of the next 15 months or concerns that the very long current expansion cannot last forever. Expectations for the real estate market are more tempered than for the overall economy, with rent growth and return forecasts below trend and surprisingly moderate for late in the cycle. That said, if forecasters are correct about growth continuing through 2020, the 11-year real estate expansion that started in 2010 will be one of the longest on record.