Saturday, April 25, 2009

You can't trust those appraisers

I remember the days before my wife and I closed on our current home. Our mortgage company ordered an appraisal. No one was surprised when the appraiser came back with more or less the exact value we needed to close our loan.

During the housing boom, that's how it worked. Real estate appraisers, under pressure from real estate agents and mortgage loan officers, valued homes at whatever number was needed to guarantee that a real estate transaction could take price. This is one of the main reasons why housing prices rose far too high too quickly during the housing boom.

That's why it's so funny to hear real estate appraisers complain today about new appraisal rules designed to help prevent mortgage fraud. Should we really be listening to these "professionals" about anything? If the people in this industry had backbones, we wouldn't have seen so many over-inflated housing prices during the last seven years.

A recent Associated Press story, which you can read here, details the appraisal scam run by a group of real estate pros in Central Ohio. According to prosecutors, the appraisers in involved ripped off banks by willingly overestimating the values of homes in the central portion of the state.

Good work guys. Thanks for contributing to both the housing collapse and the financial mess that resulted from it.

Thursday, April 23, 2009

Newspapers not to blame for real estate mess

I've written about residential real estate for more than a decade (and believe me, it seems like longer). Never once, during this time, did I hear a real estate agent thank the media for their help in boosting home sales during the real estate boom of 2001 through 2006.

There's a good reason for that: Newspaper and TV reporters had nothing to do with how many homes were bought and sold during the boom.

Of course, now that home sales are in the toilet, and housing prices are falling lower by the day, I've heard plenty of griping from real estate professionals that the media are partly to blame for the housing mess we're in today.

Newspaper stories and TV newscasts are harping on the negatives about the housing market, agents have told me. They're not telling the whole story. They're not focusing enough on what a great time it is to buy.

Of course, this is all idiocy. The media are no more to blame for the housing mess than they are for that dear old, much-missed housing boom.

The real reason that the housing industry is in such disarray is simple: Housing prices rose too high too quickly. Homes were becoming unaffordable. Housing prices had to go down -- despite what officials with the National Association of Realtors would have you believe. At the same time, the mortgage lending industry, run by just about the sleaziest business people you'd ever want to meet, was passing out money to people who could barely make the rent payments on their two-bedroom apartments every month. These people had no business owning a home and taking on the burden of a monthly mortgage payment. The rising defaults and foreclosures should've come as a surprise to no one.

Real estate appraisrs, too, played their role. They were all too happy to appraise homes for whatever price they needed to hit to have a real estate deal close.

Finally, don't forget homebuyers themselves. How many of them willingly took adjustable-rate mortgages with artificially low interest rates just so they could buy a home they had to have known deep down that they couldn't afford?

In short, everyone' s to blame. But the media? No. The media are focusing on the bad news in the housing industry because there's no good news on which to focus.

Tuesday, April 21, 2009

Never trust anything that comes out of the National Association of Realtors

You might recall that in February, the sale of existing homes across the country rose by about 5 percent.

The media treated this an amazing event. Might the housing industry be nearing a recovery?

Of course, the National Association of Realtors trumpted the news, too, in its own press releases.

One thing, though, was largely missing from all this analysis: Home sales always increase from January to February. And they usually increase by about 5 percent. Now, if something happens every year it's not exactly a big event when it happens again, is it?

The spin from the Realtors Association, though, is nothing new. The association has been spinning for decades. Remember the housing boom? (It seems like eons ago, but it was still going strong through part of 2006.) You might recall there being a pretty feisty debate about whether there was such a thing as a housing bubble. Many financial analysts warned us that not only would housing prices eventually stop rising, they'd probably begin falling, too.

The National Association of Realtors, though, argued vehemently against the existence of a housing bubble. Led by their chief economist, the now discredited David Lereah, officials with the real estate association said that there was no evidence of a housing bubble. They argued that housing prices would continue to rise.

Of course, the association and Lereah were wrong. They were as wrong as you could be. (Unless, of course, you did something as stupid as starting a war over weapons of mass destruction that didn't actually exist. That's a different blog, though.)

There's an entertaining blog out there, David Lereah Watch, that's been hammering at Lereah for some time. Lereah has recently been named by Time Magazine as one of the top 25 people responsible for the financial crisis, so that blog isn't alone in slamming the economist. But Lereah Watch has done a great job in exposing what a hypocrite Lereah is.

For instance, Lereah has admitted that he did spin the news a bit in arguing against the possibility of a housing bubble. Lereah, though, says he did this at the request of the Realtors Association. I don't doubt that. But Lereah could have had some guts. He could have refused. Heck, he could have resigned. Don't tell me that Lereah would have had a hard time finding another job.

(I've used the same argument about Colin Powell, by the way. Remember, he was against the Iraq war. Something he's mentioned ever since leaving his post in the former Bush administration. My question is, why didn't he show a backbone and say something while he was Secretary of State? You know, when he might have been able to do something about the mess Bush got us into. But, again, that's another blog.)

The lesson here is this: Don't ever trust any information that comes from the National Association of Realtors. And don't trust the media to dig deeply enough to discover for themselves that the association is lying.

Saturday, April 18, 2009

Think your Realtor is looking out for you? Ha!

My wife and I bought our current home in the suburbs of Chicago three years ago. Yes, our timing was terrible; We bought right before housing prices started falling. We did shave some money off the seller's asking price, but probably not as much as we could have.

No problem, though. We like our house. We love our neighborhood. We figure that by the time we sell, our house will have appreciated significantly. ('Course, I'd like to sell in 30 years, after we've paid off the house. My wife might not be on the same timetable.)

Then it rains. And if it rains hard, then I no longer like our house. Not at all.

Our basement leaks. When it rains hard enough, the damn thing floods. During a recent downpour, I was able to spend a Saturday afternoon pumping rainwater into a shop vac all day. Nothing better.

The people who sold our house to us did not disclose this leakage problem before we bought it. That's supposed to be a big no-no. So the first time our basement flooded, we did what any ticked-off homeowner would do: We called our real estate agent.

Surprise! The agent passed us off to our home inspector. The inspector reminded me that on the day he inspected our home, it was not raining. How then, he said, could he have known that the basement flooded?

We moved on to our real estate attorney next. You have to hire a real estate attorney in Illinois before completing a home purchase. I have no idea why, though I suspect it has something to do with the $250 or so real estate attorneys pocket for sitting half-awake through a closing. Our real estate attorney told us to buck up and pay to waterproof our basement by ourselves. It'd be too hard to prove that the sellers had ever experienced flooding in the eight years they owned the house. Never mind that this same basement has flooded four times in the three years we've owned it.

The point to this story? It's the same point as with this entire blog: Don't trust anyone in the real estate business. Real estate agents -- and mortgage loan officers, real estate attorneys and home inspectors -- promise that they look out for their clients. Don't believe it.

I'll chart the many ways in which real estate agents and their industry peers have screwed over the U.S. home-buying public. And I'll do it three times a week, updating the blog on Saturdays, Tuesdays and Thursdays.

Log on and add your own stories. I'm sure we've all been screwed over by our "trusted real estate professionals."