How Much Is Your Home’s Collateral Value?

Traditional Appraisal and Automated Valuation Models Don’t Always See Eye to Eye.

Recently the two government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac announced plans to waive the requirement of a professional appraisal on qualified purchase loans with a loan-to-value ratio at or below 80 percent.  For Fannie Mae, the new waiver option extends the Property Inspection Waiver program which was initially only applicable to refinancing loans. Similarly for Freddie Mac, the move has expanded lenders’ option to use automated evaluation tools, in lieu of a traditional appraisal, on both purchase and refinancing loans when working with its Loan Advisor Suite.

The GSE announcements came amid reports of a shortage of state-certified and licensed appraisers, especially in rural areas.  Nonetheless, the announcement was not without controversy. The Appraisal Institute (AI), the country’s largest trade association of real estate appraisers, has raised safety and soundness concerns of eliminating the appraisal requirement and is seeking a legislative rollback as it regards “the requirement for the completion of full appraisals to determine the true equity position of individual properties” fundamental to prudent risk management for the mortgage finance sector.  Under the federal banking regulations for real estate transactions, automated appraisal methods are generally reserved as a due diligence tool rather than as the primary valuation.

From a market economics perspective, a clash between automated evaluations and traditional appraisal seems rather inevitable, as advanced analytics and big data technology have steadfastly pushed the boundaries of collateral evaluation capabilities. Today’s automated valuation alternatives are often powered by large databases that can capture information on a given property as well as transaction records in and around the property in consideration.

 What Title of figure 2 is

In mortgage underwriting and securitization, collateral risk is typically quantified by loan-to-value (LTV) ratios. For purchase loans, the LTV ratios at origination are valued at the lesser of purchase price and appraised value. Since traditional appraisals infrequently come in below purchase price – about 10 percent of the time among loan applications or less than 4 percent among funded loans – a loan’s collateral risk measure is typically unaffected by appraisal.

But that could change quickly using an automated valuation model (AVM). Here is a quick look at the difference between traditional appraisal and AVMs, with implications for origination LTV. This blog analyzed a sample of recently appraised single-family purchased with mortgage financing for which a CoreLogic AVM value was also available.  The sample consists of approximately 190,000 purchase-loan properties appraised between July 2016 and June 2017.

Figure 1 shows the distribution of the properties’ traditional appraisal value relative to their purchase price. A majority of the appraisals were either exactly at the contract price (31.6 percent) or slightly above it (58.6 percent), leaving about 10 percent of the properties appraised below the purchase price. With very few appraisals on the low end, the purchase price effectively determined origination LTV during loan underwriting.

Figure 2 shows the distribution of the AVM values relative to the purchase price: 45.4 percent of the AVM values were at or above the contract price, while 54.6 percent were below it. Compared with traditional appraisals, the AVM values were more symmetrically distributed about the purchase price but with thicker tails on both ends (that is, greater uncertainty in the valuation). For the 5-in-9 properties with an AVM value below the purchase price, the LTV ratios for these loans would be higher had the AVM valuations been used instead of a traditional appraisal.

Since the odds of an AVM coming in below the purchase price were 55-45 in this analysis, compared with 10-90 for traditional appraisals, AVM usage will increase the underwriting LTV on a much larger number of loans. And the ‘fatter tail’ of the distribution below the contract price means that the upward LTV adjustment will more often be larger than for a traditional appraisal.

While the industry may debate which valuation method is likely more accurate than the other, or more importantly, which is more useful than the other in predicting default risk and loan performance, there is one thing we can all agree on: Lenders and mortgage investors need reliable information about a loan’s and portfolio’s collateral risk to make informed underwriting and investment decisions.

[1] The property must be a single-family, primary residence or second home with a value less than $1 million; additional restrictions apply.

[2] See the Interagency Advisory on the Availability of Appraisers, issued by the federal banking regulators on May 31, 2017. https://www.occ.gov/news-issuances/news-releases/2017/nr-ia-2017-60a.pdf

[3] The Appraisal Institute press release, “Appraisal Institute Joins 35 Groups Seeking to Halt Appraisal Waivers,” September 7, 2017.

[4] See the Interagency Appraisal and Evaluation Guidelines 2010, which was originally issued in 1994 by the FDIC, OCC, FBR, and OTC, in accordance with Title XI of the 1989 FIRREA.

[5] A recent study by researchers at Fannie Mae reported less than 4 percent of the purchase loans guaranteed by the agency during 1992-2015 had an appraisal below the purchase price. The study can be accessed at http://www.fanniemae.com/resources/file/research/datanotes/pdf/working-paper-102816.pdf

[6] The AVM valuation date (or, AVM “as of” date) did not fall exactly on the appraisal date, but ranged from 15 days to about 3 ½ months after the appraisal date.

[7] Because the data set did not include the buyers’ loan amount, analysis by LTV ratio could not be performed. It remains to be seen whether the distribution of AVM valuations or appraisal is affected by leverage. However, if the valuations are unbiased, we should not expect leverage to affect the valuation outcome.

Housing Forecast 2018-2019: Declining New Demand

Take a step back from whatever data you normally look at. We’ll begin big picture with how many housing units are needed to accommodate changes in the United States. By housing units, I’m including single family dwellings, apartments and condos, as well as mobile . This is the key to a housing forecast, after which it makes sense to think about construction by different types, home prices and rental vacancy rates. We’ll keep this analysis at the national level; you can use the same logic to look at your own state or metropolitan area.

Dr. Bill Conerly; historical data from Census Bureau

Drivers of growth are population, changes in household size, and pent-up demand. Population growth is the biggest factor, so let’s start there. The surprising news is how soft population growth has been in recent years. Last year’s increase of 0.7 percent was the lowest percentage gain since 1937. For the 20 years prior to the last recession, growth averaged 1.2 percent. That may seem close to 0.7, but most housing is built for new demand, not as replacement. At 0.7 percent growth, new demand is just 58 percent of what it would be at 1.2 percent population growth. That tells us that we need to forget old averages, like housing starts of 1.5 million units a year. Let’s assume that next year is like last year. Population will grow by about 2.278 million people.

 

The second driver of housing demand is reduction of average size of households. When a couple split up and each get their own home, that increases demand for housing. (Recall that we include apartments when we use the word “housing.”) In the opposite direction, when a young adult gives up an apartment to move back home with the parents, demand for housing decreases. We can measure this by average size of a household. When average size (number of people) goes down, demand for housing is going up.

Despite the meme about young adults living in their parents’ basements, the average household size is now lower than before the recession. (In 2006, average was 2.57 people per household; most recently 2.53.) If average household size levels out, we’ll have about 0.881 million new households. But if the recent downward trend continues, we’ll have 1.183 million. That’s a pretty big swing, so household size is a large driver of housing demand.

The ability to live on one’s own, whether that means moving out from parents or from an ex-spouse, ties to employment and wage rates. As we noted in our article on the consumer spending forecast, job growth has been moderately slow, and wage inflation has not accelerated. I expect wage rates to improve next year, but not soon enough to change the trend in household size. So new demand for housing units will be (under these assumptions) 1.183 million units. For comparison purposes, so far this year we are on pace to build 1.287 million single family houses, apartment and condo units, and manufactured homes. Looks like we’re building too much, at least nationwide.

Will pent-up demand take up some of these homes? I look at how many vacant housing unitsthere are. Some vacancy is normal and even good. For non-rental housing (mostly single family homes, but also some condos), average vacancy is 1.4 percent. In the recession, vacancy hit 2.9 percent, but most recently was down to 1.5 percent. So supply is not tighter than normal despite talk of another housing bubble.

On the rental side (mostly apartments but some single family homes included), average is 7.0 percent but we are now at 7.3 percent (down from 11.1 percent in the recession). The underlying data are not terribly precise, but we’re certainly in the ballpark of normal vacancy. This looks to me like we do not have too much or too little inventory relative to demand. (Note that some real estate analysts use the word “inventory” to describe the number of houses listed with real estate agents. That is not at all a measure of inventory or supply.)

A few points makes the analysis a little more difficult. These are national data. While people are mobile, most housing is not. An excess of houses in Detroit or Cleveland cannot help people moving to Utah or Florida. We also don’t count demolitions or houses left permanently vacant very well, nor do we have a solid handle on vacation homes.

Nonetheless, I’m comfortable saying that we don’t need an increase in home construction, and would be just fine with a five percent reduction in housing starts next year and in 2019, which is my forecast.

Given that both owned and rental vacancy rates are about normal, do we need to change the mix of single family and multifamily construction? For most of the 1990s and 2000s about 80 percent of new construction were single family units; that figure is down to around 65 percent now. With millennials entering their child-rearing ages, we should see greater demand for suburban houses and less demand for urban apartments and condos, as I argued in my Multi-Family Real Estate Forecast: 2014-2020.

As for home pricing, if we’re currently building more houses than we need, then prices don’t need to firm up. I expect long-term interest rates to rise a little, which won’t help prices. Although there’s not much reason to expect a collapse, the recent six percent nationwide price increase seems a bit much given the demographics. I would think that three percent would be more realistic.

This national picture may not apply to your neighborhood at all. Real estate is local, so look at your community. Begin with population data. (Household data are harder to find at the local level.) Understand your own community by looking at historic data on housing units permittedper 100 new residents. Don’t be too swayed by local gossip. Instead, begin with demographics.

Snapshot of $172M worth of Lake Nona projects underway

The fast-growing, 13,000-resident Lake Nona community in southeast Orlando is dotted with cranes, piles of earth and the machines to push ’em around.

Among developer Development Co.’s projects underway are three valued at  $172 million combined:

Flip through Orlando Journal‘s slideshow for a closer look at these developments emerging out of former pasture land.

Lake Nona is home to several businesses, including the new $430 million KPMG training and innovation center and New York-based Drive Shack Inc. (NYSE: DS), a new global golf entertainment company opening its first location in Lake Nona in 2018.

Cities Higher at Risk for Bubble

Image

Are we in a housing bubble? Whenever house prices increase faster than general inflation for a year or two, we hear that question more often. Can the market sustain the new higher price, or has something artificially or temporarily inflated these prices?

Nationally, over the past five years, the increase in house prices has outpaced inflation by 34 percent cumulatively since 2012 (figure 1). Though noteworthy, the increase is less than half the pace seen between 1997 and 2006, which saw house price growth outpace inflation by 87 percent.

Locally, there are areas of concern

Of course, real estate is local, so we should also ask if there are any regional housing bubbles. We examined the same two key factors to measure the likelihood that a metropolitan statistical area (MSA) is in a bubble, and we offer a method that ranks the largest MSAs against each other based on these factors.

We began with the 37 largest MSAs and looked at the real increase in house prices since their lowest point following the crisis (the trough) and our measure. We then sum the rankings and re-rank the MSAs most likely to be in a bubble, our “bubble watch” rank.

The top 10 MSAs are ranked high on both home price growth and lack of affordability measures. But further down the list, the rank could be driven by one measure or the other.

Thanksgiving Day Dining and Events in Orlando

Planning a Turkey Day getaway to Orlando? You’ll be thankful you did. There’s a cornucopia of tasty delights, shopping deals, hotel specials and fun events to enjoy this . Your Turkey Dinner cravings will be satisfied this Thanksgiving in Orlando. Just come hungry!

Thanksgiving Dinner Options

Whether you’re looking for an intimate dinner for two or celebrating with the whole family, Orlando’s most scrumptious restaurants and luxurious hotels that are offering Thanksgiving dining options where there’s something for everyone! But make your reservations early – you’ll thank us later.

Family-Friendly Restaurants

Are you looking for that special dinner out with the family, where the food, atmosphere and fun are the main attractions? In Orlando, there are many restaurants that are a feast on the eyes, as well as the taste buds – and serve up plenty of entertainment!

Shop ‘Till You Drop

Discover a shopper’s paradise, starting on Black Friday, like no other destination. Retail therapy and unbelievable values are never far from reach this holiday season among Orlando’s quaint boutiques and expansive shopping malls. And discover unique boutiques and holiday gifts along Park Avenue in Winter Park.

Dine, Shop & Stay

One of the biggest shopping days of the year is almost here and if you’re looking for the perfect gift for yourself or for that special someone, shopping in Orlando can be a joyous delight. But even if you’re feeling a bit overwhelmed, there’s no reason to get your tinsel in a tangle. Our Orlando shopping expert, Melanie Pace, has provided her top tips for a more enjoyable, less-stressful shopping experience.

Thanksgiving Weekend Events

The holiday weekend in Orlando also has a full plate of family fun events.

Hundreds of vehicles will be showcased during the Central Florida International Auto Show during Thanksgiving weekend.

The Seniors First Turkey Trot 5k is a Thanksgiving tradition in downtown Orlando that is a must-see!

Holiday Harbor Nights at Loews Portofino Bay Hotel

Kick off the holiday season at our popular food and wine event from 6:30 pm – 9 pm. Enjoy select wines and sparkling wines, expertly prepared gourmet foods and live music, plus the grand illumination of Portofino’s Christmas tree and more on the picturesque Harbor Piazza. General admission $50 ($55 at the door), VIP $85 (online only). Purchase tickets online at LoewsHotels.tix.com.

Roy’s Restaurant was built upon European techniques

Roy’s Restaurant was built upon European techniques, Pacific Rim cuisine and warm, from the heart hospitality that seeks to create a remarkable and unique dining experience.

There are currently four locations in Florida, with locations in Orlando, Bonita Springs, Jacksonville Beach and Tampa, but the first Roy’s was opened in Honolulu, Hawaii in 1988 by namesake Roy Yamaguchi. Currently there are 20 Roy’s restaurants in the continental United States, six in Hawaii, one in Japan and one in Guam.

Culinary pioneer and Roy’s founder Roy Yamaguchi was born in Tokyo. It was while visiting his grandparents on Maui that he had his first taste of seafood bought fresh at seaside piers that would shape his future career.

At 19, he graduated from the Culinary Institute of America in New York as a master chef and moved to Los Angeles where he served as executive chef at La Serene. After gaining invaluable experience in LA, Roy decided it was time to head closer to his roots. He moved to Hawaii and opened the first Roy’s in 1988, and eventually became a James Beard award winner.

Although, aside from six locations in Hawaii, and a location in Guam, Roy did sell the remainder of his locations and sold the brand. The rest of the restaurants that have been sold are doing a great job of upholding the style and techniques that Roy instilled in his original fusion cuisine at his original Roy’s in Honolulu in 1988.

The food here blends classic techniques with adventurous Pacific Rim flavors, and outstanding seafood selections with great cocktails and an even better wine selection. Everything from Sushi to fried spring rolls is on the starter menu and a wide variety of seafood selections to braised short ribs of beef can be had for your entree selections.

Orange County Breaks Ground on New School in Wedgefield

As they lifted the dirt with their shovels, the group of Wedgefield residents felt that a 10-year wait was finally at an end. Their neighborhood was getting a school.

“It’s not just talk anymore. It’s not just a dream. It’s really happening,” says school supporter and Wedgefield resident Joel Thaw. At least one of his two grandsons will likely attend the new K-8 school that has begun in their neighborhood.

Established in 1962 as “Rocket City,” a planned development midway between Orlando and the Space Coast, Wedgefield took a while to boom. Plans for a school or two in the neighborhood started about a decade ago, but then the recession hit. There weren’t enough children in the neighborhood to fill two schools.

Reacting to parent concerns, the Orange County School Board decided to build a K-8 school on a 52-acre parcel on Bancroft Boulevard that was originally planned as a middle school.

Students have been taking bus rides of up to 45 minutes to get to Columbia Elementary or Corner Lake Middle, which face overcrowding issues.

When the new plans faced opposition from a small group of neighbors, supporters mobilized.

“My kids are super proud of me for working for something that is going to be part of our community,” says parent and Wedgefield resident Evelyn Perez. She was among the organizers, helping order and distribute hundreds of blue T-shirts that read “Wedgefield K-8 School 2016.”
At least 200 people attended community meetings and shared notes online in support of the school.

And on June 27, it was time to celebrate.

At least 80 parents, children and members of the community gathered on the construction site. The ground was marked by tire tracks from heavy equipment, and stakes were in the ground where the concrete slab of the school will go.

“In Wedgefield, we don’t really have anything that brings us together,” Perez says. A school will provide that focus, she says. “Our kids are going to be there together and get even closer.”

She credited Orange County Public Schools for “going above and beyond” to serve the community and address concerns.
School Board Member Joie Cadle and County Commissioner Ted Edwards spoke at the groundbreaking ceremony, and residents filled out commemorative postcards that students at the new school will read at a dedication ceremony. Commemorative coins marked the date.

The 138,730-square-foot school, which is set to be ready in time for school in August 2016, will have classroom space for about 1,030 students. It will include two multi-story classroom buildings, a light-filled media center, a gym, cafeteria, art and music labs and 21st-century digital technology throughout. The colors and textures inside the school will be inspired by the natural habitat.

The name, mascot and principal will be decided sometime next year.

 

 

By Lauren Roth, senior manager of facilities communications for Orange County Public Schools

Orlando tenants feel pinch of rent spikes

Metro Orlando rents spiked by as much as 15 percent during a year-long period when rents nationally declined, making Central Florida less affordable than some California markets, including Sacramento, a new report shows.

The biggest jump in rental rates hit smaller units. An influx of new complexes filled with one-bedroom units pushed up the average rental on those apartments by 15 percent from a year ago and 5 percent from a month earlier, reaching an average $1,170, according to research released Tuesday by the analytics firm Zumper. Household income in Metro rose 1.2 percent during that period, the federal government reported.

Rosalinda Hernandez, 60, works as a bill collector and lives with her mother in the east Orlando area. She said she keeps a close watch on the apartment market and finds no property managers offering discounts.

“If you don’t have someone to live with, you can’t make it,” she said.

For landlords, the region has been identified as a standout for its rising rents.

Brian Alford, market economist for the CoStar Group, said Orlando’s annual rent growth is one of the best in the nation. The four-county area had fourth highest year-over-year rent gains among the nation’s top 54 metro areas, he said.

“Orlando has seen rent growth across both luxury and workforce housing, which is not the norm,” he said.

The boost in prices repositions the Metro Orlando area from a region considered affordable to one where renters have to search harder to find deals. Apartments with two bedrooms rose at about half the rate of one-bedroom rentals and averaged $1,290 in October.Universal Orlando announces two new hotels

While rents in Orange, Seminole, Osceola and Lake counties rose by double-digit amounts from a year earlier, rents nationally declined by about 1 percent.

The Orlando area’s rent hikes come even as thousands of new units are rolling onto the market with 4,500 new apartments added in October, according to ALN Apartment Data.

Within the region, Clermont appeared to have one of the lower occupancy rates with less than 90 percent of units filled while the Eustis/Leesburg and DeLand areas appeared to have a shortage of rentals with virtually no units available in September, ALN reported. In the University of Central Florida area, east Orlando and Oviedo had an occupancy rate of 94 percent.

Tenants renting houses in the Orlando region did not escape the spike with those rents rising more than 4 percent in September, which was higher than the increases of 3.5 percent nationally, according to Morningstar. Higher rents don’t seem to be scaring away tenants with vacancy rates of 4.8 percent in September, which was down slightly from a year earlier. Nationally, vacancy rates for rental houses were 5.9 percent.

Looking ahead, conditions are unlikely to improve for renters with an influx of prospective renters following hurricanes, said Ryan Coon, an author who writes on landlord issues..

“We’re continuing the see rents climb in Orlando, especially as the housing market remains tight post-Irma,” Coon said. “This trend bodes well for landlords looking to invest in the area.”

 

Drinking Local at This Year’s Taste! Central Florida

Taste! Central Florida Orlando’s annual premier culinary event took place August 19th at the Orlando World Marriott Center. While this is the 27th year for the annual foodie event this is the first year the event went all local. The name changed and with the focus on local, the proceeds are all local this year as well. 100% of the funds will be used to fight hunger in Central Florida. I applaud the vendors, volunteers, and the guests who came out to support the cause.

The Orlando World Marriott Center donates the event space each year. This is a huge event! There are over forty restaurants and food vendors along with 20+ beverage sponsors! If you can’t make the event you can still bid on some great prizes!

While this is considered the “foodie” event to go to in Orlando, I love all the drink options as much!
The Taste is four hours long. That’s a lot of eating and drinking! I covered a lot of ground, but I still missed out on so much amazing food and drink. Here are some of the drinks I sampled and enjoyed that evening.
Orange Blossom Brewing Co. is always setting up their fun tasty tap car. I’ve been coming to the event for the last four years. This year I decided to take advantage of the great rate they were offering attendees. Hubs and I got there early enough to enjoy a drink at the pool beforehand. 🍹 This may have set precedent on how my evening would go.

Three new restaurants are coming to Disney Springs next year

Disney Springs is adding to its menu of Italian eateries.

Patina Restaurant Group, owners of Morimoto Asia, announced today that they will open Enzo’s Hideaway and Pizza Ponte, early next year. As we previously reported, the group is also opening the traditional Italian trattoria, Maria & Enzo’s in the same complex.

A statement released by the group describes Enzo’s Hideaway as a “Roman- aperitivo-inspired” speakeasy that pays homage to ‘s rum running history.

The prohibition theme extends to Maria and Enzo’s, connecting to the restaurant through the building’s rum-running tunnels. Expect foods like Bucatini alla Carbonara, a hollow spaghetti with creamy egg dish with pancetta sauce and Tonnarelli Cacio e Pepe, square-cut spaghetti with pecorino and black pepper.

Pizza Ponte, on the other hand, is a “fast-casual concept” that will offer savory and sweet options from Sicilian-style pizza by the slice, Triangolo (stuffed pizza bread) and Bomboloni Italian doughnuts, to Sfoglia di Riso rice cream pastry and a classic Tiramisu.

The new also come with the group’s development of The Edison, a “Industrial Gothic” style bar and restaurant expected to open by the end of 2017.