Opinions and insights from real estate broker Rick Bosl

Tuesday — for the first time in a long while — members of the press met the monthly Case-Shiller Index data with enthusiasm.  And why shouldn’t they?  19 of the 20 measured markets showed a slowing pace of home price decline in April.

Here are some of the headlines about the story:

• Case-Shiller Home Prices Decline Only 18% (Business Week)
• Case-Shiller Less Bad (Seeking Alpha)
• Home Prices In 20 Cities Drop Less Than Expected (Bloomberg)

Now, the headlines feel negative, but they’re actually highlighting some key strengths in April’s figures.  For example, nearly half of the Case-Shiller markets posted gains in April and all but one showed month-over-month improvement.

It’s a step in the right direction but doesn’t mean that housing has turned around for good.

We have to be careful about how we interpret the Case-Shiller Index because it’s an imperfect housing gauge.  The most obvious Case-Shiller flaw is that it only measures home values in 20 cities nationwide and they’re not even the 20 biggest cities.

Houston, Philadelphia, San Antonio and San Jose are excluded from the report and each ranks among the country’s 10 most populous areas.

That said, the report is still important because the Case-Shiller Index identifies broader housing trends and that helps to shape economic policy.

Not only versus last month but also versus last year, the pace at which home values are falling appears to be getting slower.  This is the third straight month Case-Shiller has reported as such.

Now, three months makes a trend, but the data has to stay strong through the summer months to mark a bona fide turnaround.  If the Case-Shiller Index shows strength for May and June, it could be the signal for which the markets have been waiting.

Check back in a few days and I will have some specific data for the Arlington Condo market.

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Posted by: Rick Bosl, Associate Broker

Keller Williams Realty - Arlington

A friend contacted me recently regarding the appraisal used for her refi on her condo at The Odyssey. The problem was it came in low. Way low. I looked over the appraisal and was dumbfounded by the comparables used. My friend has a nice 800 sq ft condo at The Odyssey, yet the appraiser used three condos at The Atrium! What’s up with that? Not to knock The Atrium, but if you are looking for comps, there are much better choices than a building almost 20 years older. You can start with the Odyssey itself, where smaller, 650 sq ft, units recently sold for more than the appraised value of her 800 sq ft condo.

The cause of the problem? The new Home Value Code of Conduct (HVCC) that went into place May 1st.

The HVCC forces a firewall between lenders and home appraisers. Gone are longstanding relationships between a local mortgage broker or lender and a local appraiser.

Now, lenders and brokers are forced to use appraisal management companies (ironically – or maybe not so ironically—many of which are owned by the big banks). These companies hire independent appraisers across the country and call on them to do the local appraisals. This new middleman is a business in itself and trying to make a profit, often by using the cheapest appraiser they can find.

Watch the video above for some more insights on this issue. The point of the HVCC was to take fraud out of the appraisal process, and let’s face it, there was plenty of that. However, the knee-jerk reaction has caused its own set of problems.

So what is the next step for my friend? I’m sending her some better comps to use and she gets to fill out an Appraisal Dispute Form. All this could have been avoided if an experienced appraiser was used who really knew the area.

Anyone else running into appraisal problems on a purchase or refi?

At the start of the year, the “experts” made a lot of predictions about the U.S. economy and what to expect in 2009.

• Some said housing would rise
• Some said housing would fall
• Some said mortgage rates would rise
• Some said mortgage rates would fall

And nobody predicted just how big the government’s stimulus package would be.

Now, on June 30, with the year officially half-over, it’s as good a time as any to remember that people are much better at interpreting the past than predicting the future.  Economists can make educated guesses about the future, but they’re guesses nonetheless.

It’s like watching the Weather Channel.  A meterologist can look at the data and say it’s going to rain next week, but the forecast is never 100%.

So far this year, mortgage rates have been up and down, credit availability has been higher and lower, and home prices have varied immensely from neighborhood to neighborhood.

There’s another 6 months until 2010 and there’s no reason to expect the current volatility and uncertainty to change.

The world is unpredictable and so is the U.S. economy.  Therefore, consider making your personal finance decisions based on the information at hand today instead of on an educated guess about the future.

After all, the weatherman’s been wrong before.

I still remember at the beginning of the year, listening to a local economist talk about the second wave of ARM adjustmments and how that would bring more foreclosures to the Arlington Condo market. Someone forgot to tell him that when an ARM adjusts, the interest rate doesn’t always go up - they can and do adjust downward. As long as rates remain low, we will be in good shape here in Arlington. If rates jump up to 7% or more, look out.

What have been your surprises this year?

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Posted by: Rick Bosl, Associate Broker

Keller Williams Realty - Arlington

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today within its target range of 0.000-0.250 percent.

The Fed also reiterated its plan to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the U.S. economy is not slowing with the same speed versus just two months ago and that financial markets, in general, are improving.

These are two signs that the country may be emerging from recession, if it hasn’t already.

The news isn’t all good, however.  The Fed made a point to highlight the potential hazards the nations faces on its path to economic recovery:

• The prices of energy and commodities have been rising
• Job losses are still mounting nationally
• Businesses are reducing capital expenditures

Also in its statement, the Fed acknowledged a plan to hold the Fed Funds Rate near zero percent “for an extended period” and a re-commitment to the U.S. Treasury and Mortgage Bond markets.

Market reaction to the Fed’s press release has been muted.

With no new stimulus and no new “tools” to spur the economy unveiled, Wall Street is business as usual.  Mortgage rates are unchanged post-FOMC today.

The FOMC’s next scheduled meeting is August 11-12, 2009.

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Posted by: Rick Bosl, Associate Broker

Keller Williams Realty - Arlington

Like To Play It Cautious? Consider Rate Locking Ahead Of Wednesday’s Federal Reserve Meeting.
The Federal Reserve begins its scheduled two-day meeting this morning.

It’s one of 8 scheduled meetings for the Federal Open Market Committee this year.

When the FOMC meets, it discusses the financial and economic conditions around the country and, when appropriate, the group makes new policy meant to speed up or slow down the economy.

The main tool for reaching this goal is the Fed Funds Rate and, earlier this year, the FOMC lowered it to “near-zero” percent in an attempt to stimulate growth.

But the Fed has other tools at its disposal, too, not the least of which is its $1.25 trillion pledge to the mortgage markets.

Now, if you’ll remember, the Fed made that pledge in two parts:

• Part 1 came in November 2008 for $500 billion
• Part 2 came in March 2008 for $750 billion

After each announcement, mortgage rates reflexively dropped and stayed low for a period of a day or two.  Then, fears of inflation set in on Wall Street, causing mortgage rates to pop back up because inflation is a mortgage-rate killer.

The Fed isn’t expected to increase its mortgage market commitment this week, but because mortgage rates are above the government’s “target zone”, it’s possible that the FOMC uses its post-meeting press release to give markets some guidance and its plan for the next several months.

A statement like this could alternately raise mortgage rates or lower them, depending on what the Fed says.

It’s for this reason that floating a mortgage rate through tomorrow afternoon is extremely risky.  The Fed could say nothing about mortgages, or it could say a lot.  Either way, a small, quarter-percent change in mortgage rates can add tens of thousands of dollars to the lifetime cost of a person’s pending home loan.

The Fed’s press release hits the wires at 2:15 PM ET Wednesday.  If you’re the cautious type, consider locking your mortgage rate prior to its release.

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Posted by: Rick Bosl, Associate Broker
Keller Williams Realty - Arlington