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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.

Cities Higher at Risk for Bubble

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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.

Orlando Eye developer submits plans for luxury lakefront homes

A well-known developer is moving forward with plans to put 13 multimillion-dollar on the last large developable land tract off the Butler Chain of Lakes.

Unicorp National Developments Inc. on Sept. 12 filed a preliminary subdivision plan in Orange County to build a 13-lot single-family development on 16.59 acres of The Hubbard Estate.

The development would be inside Arnold Palmer‘s Bay Hill community just west of the golf course on the shores of Lake Tibet in Orange County, Orlando Business Journal previously reported.

Unicorp has selected a couple of builders, including Jones Clayton Construction Inc., which provided renderings of the first speculation home that will be built in the neighborhood at 9000 Hubbard Place. A name for the subdivision has not been finalized yet.

Unicorp President Chuck Whittall previously told Orlando Business Journal the home prices would range from $5 million-$15 million.

The owners of The Hubbard Estate — the 2012 Hubbard Family Trust — authorized on June 13 Orlando-based Bio-Tech Consulting Inc. to make a conservation area determination on behalf of Unicorp, OBJ previously reported.

Jones Clayton Construction was not immediately available for comment.

Unicorp is the developer behind the I-Drive 360, Westside Shoppes, the Starflyer under construction on International Drive, and a host of other projects.

Home sales drop—again—and will continue ‘unless supply miraculously improves’

House . Real Estate Sign in Front of a House.

After a brief improvement in June, home sales continued their downward slide in July, with buyers signing fewer contracts to purchase existing .

An index of so-called pending home sales, which represent closings one to two months from now, fell 0.8 percent compared with June, according to the National Association of Realtors. That is the fourth monthly drop in the past five months. June’s reading was also revised lower. The index is now 1.3 percent below a year ago and has fallen on an annual basis in three of the past four months.

“Buyer traffic continues to be higher than a year ago, the typical listing has gone under contract within a month since April,” said Lawrence Yun, chief economist for the Realtors. “The reality, therefore, is that sales in coming months will not break out unless supply miraculously improves. This seems unlikely given the inadequate pace of housing starts in recent months and the lack of interest from real estate investors looking to sell.”

 The supply of homes for sale at the end of July came in at 2.11 million, 9 percent lower than a year ago. That has fallen year over year for 26 consecutive months.

The housing market remains stuck in a holding pattern with little signs of breaking through. The pace of new listings is not catching up with what’s being sold at an astonishingly fast pace,” Yun added.

Closed sales to buy existing homes fell more than expected in July, with Realtors citing the lack of supply as the primary reason. Prices are also a factor though. The median price of a home sold in July hit $258,300, the highest July price on record. Mortgage rates have been falling through the summer and are now sitting at 2017 lows, but they are still slightly higher than one year ago. Rates have been so low for so long that they provide little relief from the fast-rising prices.

California, which boasts the priciest and tightest in the nation, saw sales slip across the board in July. The number of homes for sale fell yet again and prices hit decade highs.

“The San Francisco Bay Area posted modest year-over-year gains in home sales this May and June, but a tight inventory and waning affordability have taken a toll, and July 2017 sales fell to the lowest level for a July in six years,” said Andrew LePage, research analyst at CoreLogic.

Pending home sales in the Northeast fell 0.3 percent for the month and were 2.4 percent above a year ago. In the Midwest, sales decreased 0.7 percent for the month and were 2.8 percent lower than July 2016. In the South, sales declined 1.7 percent from June and were 0.2 percent below last July. In the West, sales rose 0.6 percent for the month but were 4.0 percent below a year ago.

Yun noted that national sales numbers could weaken more than expected this fall, due to the disruption in the Houston housing market from Hurricane Harvey.

Orlando-area home sales down despite record job growth

http://www.orlandosentinel.com/business/94337272-132.html

Home prices and sales in the core Orlando market were down in July from the month before during what is usually the peak summer buying season.

The midpoint price for an area that includes mostly Orange and Seminole counties was $220,000 in July, down from $222,500 the prior month, according to a report released Tuesday by Regional Realtor Association.

More dramatic than the slight softening in prices was the 14 percent, month-over-month drop in sales to 3,347 for July. Typically sales boom as families relocate prior to the start of the school year.

The association cited a slim inventory of listings as the culprit for what has been a less-than-spectacular summer.

“Would-be first-time homebuyers are being kept on the sidelines by limited inventory and rising prices,” said Bruce Elliott, president of the association and broker associate with Regal R. E. Professionals LLC. “However, rising prices have slowed some of the investor activity, which could mean slightly less competition for at the lower end of the market.”

Compared with a year ago, Orlando’s median home price for July was $14,000 higher.

Orlando real estate Serina Marshall said millennials in particular face a challenge as wages stagnate and prices rise for a group of would-be buyers who are affected by student loan debts, too. Renters in that age bracket also deal with rent spikes and find themselves with few options at lease renewal time.

“Those prices are being jacked up a lot and people are being forced to move out of their apartments to find something more affordable,” said Marshall, an agent with Re/Max Town Centre.

What has not grown from a year ago is the pace of monthly sales, which held flat from a year earlier. The flat sales growth comes despite record job growth for Orlando, which averaged 150 new jobs daily during a 12-month period that ended in June, according to a review of federal jobs numbers.

The headwinds facing newly employed Central Floridians are home prices rising 6.8 percent during a year-long period in which wages rose about 1 percent, according to the federal housing department. Making ownership an even more distant dream, financing has become costlier. July buyers secured average interest rates of 4.01 percent, which was up about a half point from a year ago and up slightly from a month earlier.

Within the four counties that make up Metro Orlando, only Lake showed strong sales growth in July from July 2016. Sales there were up more than 12 percent, while sales in Orange and Osceola counties were largely flat and Seminole was down more than 8 percent.

U.S. Mortgage Rates Move Lower in Mid-July

According to Freddie Mac’s latest Primary Mortgage Market Survey, the average U.S. mortgage rate dropped in mid-July, after two straight weeks of increases.

Sean Becketti, chief economist at Freddie Mac, “Continued economic uncertainty and weak inflation data pushed rates lower this week. The 10-year Treasury yield fell 5 basis points this week. The 30-year mortgage rate moved with Treasury yields, dropping 7 basis points to 3.96 percent.”

Freddie Mac News Facts:

  • 15-year FRM this week averaged 3.23 percent with an average 0.5 point, down from last week when it averaged 3.29 percent. A year ago at this time, the 15-year FRM averaged 2.75 percent.
  • 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.21 percent this week with an average 0.5 point, down from last week when it averaged 3.28 percent. A year ago at this time, the 5-year ARM averaged 2.78 percent.

Existing-Home Sales Retreat 1.8 Percent in June

Existing-Home Sales Retreat 1.8 Percent in June

WASHINGTON (July 24, 2017) — Existing-home sales slipped in June as low supply kept selling at a near record pace but ultimately ended up muting overall activity, according to the National Association of Realtors®. Only the Midwest saw an increase in sales last month.

Total existing-home sales1, https://www.nar.realtor/topics/existing-home-sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 1.8 percent to a seasonally adjusted annual rate of 5.52 million in June from 5.62 million in May. Despite last month’s decline, June’s sales pace is 0.7 percent above a year ago, but is the second lowest of 2017 (February, 5.47 million).

Lawrence Yun, NAR chief economist, says the previous three-month lull in contract activity translated to a pullback in existing sales in June. “Closings were down in most of the country last month because interested buyers are being tripped up by supply that remains stuck at a meager level and price growth that’s straining their budget,” he said. “The demand for buying a home is as strong as it has been since before the Great Recession. Listings in the affordable price range continue to be scooped up rapidly, but the severe housing shortages inflicting many markets are keeping a large segment of would-be buyers on the sidelines.”

Added Yun, “The good news is that sales are still running slightly above last year’s pace despite these persistent market challenges.”

The median existing-home price2 for all housing types in June was $263,800, up 6.5 percent from June 2016 ($247,600). Last month’s median sales price surpasses May as the new peak and is the 64th straight month of year-over-year gains.

Total housing inventory3 at the end of June declined 0.5 percent to 1.96 million existing homes available , and is now 7.1 percent lower than a year ago (2.11 million) and has fallen year-over-year for 25 consecutive months. Unsold inventory is at a 4.3-month supply at the current sales pace, which is down from 4.6 months a year ago.

First-time buyers were 32 percent of sales in June, which is down from 33 percent both in May and a year ago. NAR’s 2016 Profile of Home Buyers and Sellers – released in late 20164 – revealed that the annual share of first-time buyers was 35 percent.

“It’s shaping up to be another year of below average sales to first-time buyers despite a healthy that continues to create jobs,” said Yun. “Worsening supply and affordability conditions in many markets have unfortunately put a temporary hold on many aspiring buyers’ dreams of owning a home this year.”

According to Freddie Mac, the average commitment rate(link is external) for a 30-year, conventional, fixed-rate mortgage declined for the third consecutive month, dipping to 3.90 percent in June from 4.01 percent in May. The average commitment rate for all of 2016 was 3.65 percent.

Properties typically stayed on the market for 28 days in June, which is up from 27 days in May but down from 34 days a year ago. Short sales were on the market the longest at a median of 102 days in June, while foreclosures sold in 57 days and non-distressed homes took 27 days. Fifty-four percent of homes sold in June were on the market for less than a month.

Inventory data from realtor.com® reveals that the metropolitan statistical areas where listings stayed on the market the shortest amount of time in June were Seattle-Tacoma-Bellevue, Wash., 23 days; Salt Lake City, Utah, 26 days; San Jose-Sunnyvale-Santa Clara, Calif., 27 days; San Francisco-Oakland-Hayward, Calif., 29 days; and Denver-Aurora-Lakewood, Colo., at 30 days.

“Prospective buyers who postponed their home search this spring because of limited inventory may have better luck as the summer winds down,” said President William E. Brown, a Realtor® from Alamo, California. “The pool of buyers this time of year typically begins to shrink as households with children have likely closed on a home before school starts. Inventory remains extremely tight, but patience may pay off in coming months for those looking to buy.”

All-cash sales were 18 percent of transactions in June, down from 22 percent both in May and a year ago, and the lowest since June 2009 (13 percent). Individual investors, who account for many cash sales, purchased 13 percent of homes in June, down from 16 percent in May and unchanged from a year ago. Fifty-six percent of investors paid in cash in June.

Distressed sales5 – foreclosures and short sales – were 4 percent of sales in June, down from both May (5 percent) and a year ago (6 percent) and matching last September as the lowest share since NAR began tracking in October 2008. Three percent of June sales were foreclosures and 1 percent were short sales.

Single-family and Condo/Co-op Sales

Single-family home sales dipped 2.0 percent to a seasonally adjusted annual rate of 4.88 million in June from 4.98 million in May, but are still 0.6 percent above the 4.85 million pace a year ago. The median existing single-family home price was $266,200 in June, up 6.6 percent from June 2016.

Existing condominium and co-op sales were at a seasonally adjusted annual rate of 640,000 units in June (unchanged from May), and are 1.6 percent higher than a year ago. The median existing condo price was $245,900 in June, which is 6.5 percent above a year ago.

Regional Breakdown

June existing-home sales in the Northeast fell 2.6 percent to an annual rate of 760,000, but are still 1.3 percent above a year ago. The median price in the Northeast was $296,300, which is 4.1 percent above June 2016.

In the Midwest, existing-home sales rose 3.1 percent to an annual rate of 1.32 million in June (unchanged from June 2016). The median price in the Midwest was $213,000, up 7.7 percent from a year ago.

Existing-home sales in the South decreased 4.7 percent to an annual rate of 2.23 million (unchanged from a year ago). The median price in the South was $231,300, up 6.2 percent from a year ago.

Existing-home sales in the West declined 0.8 percent to an annual rate of 1.21 million in June, but remain 2.5 percent above a year ago. The median price in the West was $378,100, up 7.4 percent from June 2016.

Mortgage rates again fall lower

U.S. mortgage rates again ticked down this week, according to Freddie Mac.

The 30-year fixed mortgage averaged 3.94 percent for the week ending June 1, down from 3.95 percent the previous week.

Favorable mortgage rates aided U.S. home sales, and the booming refinance market.

“In a short week following Memorial Day, the 10-year Treasury yield fell 4 basis points,” said Sean Becketti, chief economist at Freddie Mac. “The 30-year mortgage rate remained relatively flat, falling 1 basis point to 3.94 percent and once again hitting a new 2017 low.”

The historic low for 30-year rates was 3.31 percent in November 2012.

Here on the local front, home prices, including distressed sales, increased by 7.5 percent in March 2017 in the Orlando metro area compared with March 2016, according to CoreLogic.

7 things to know today and housing market nears 2006 price peak

Good morning, Orlando!

We all have been watching the Orlando-area housing market with great interest in the past year, as sales and median prices continue to increase, and inventory shrinks.

Now, a new CoreLogic report sheds some light on exactly how much activity is taking place not only here in Central Florida, but nationwide as well.

U.S. home prices are up 7.1% in March, data from analytics company CoreLogic shows. And home prices, including distressed sales, increased by 7.5%t in March 2017 in the Orlando metro area compared with March 2016.

Nationwide, home prices will increase by 4.9% year-over-year from March 2017 to March 2018, CoreLogic forecast. The property data provider said its Home Price Index is only 2.8% away from its 2006 peak. The index is expected to reach the previous peak during the second half of this year with a forecasted increase of almost 5% over the next 12 months.

Prices in more than half the country already have surpassed their previous peaks, and almost 20%t of metropolitan areas are now at their price peaks, according to CoreLogic.

Strong job gains, household formation, population growth and still-attractive mortgage rates in the face of tight inventories are fueling a continuing surge in home prices across the U.S., said Frank D. Martell, CoreLogic president and CEO..