Friday, December 9, 2011

NAHB: Flawed Appraisals Killing Home Sales, Hampering Housing Recovery

One out of three builders are reporting losing signed sales contracts during the preceding six months because appraisals on their homes are less than the contract sales price, according to a recent nationwide survey conducted by the National Association of Home Builders (NAHB).

“The inappropriate use of distressed and foreclosed sales as comparables in determining new home values is needlessly driving down home prices, killing home sales, causing more workers to lose their jobs and delaying a housing and economic recovery,” said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev.

Too often, due to faulty appraisal practices, brand new homes with sparkling appliances and interior upgrades get compared to a distressed property that has been sitting vacant and in disrepair. The result, in many cases has been that the new house winds up getting appraised at less than the cost of construction.

That is precisely what is occurring in today’s marketplace, according to the NAHB survey, where a full 60 percent of respondents reported they were experiencing appraisals coming in below their contract sales price.

Of those reporting that they had encountered this problem, 53 percent said the appraisal amount was actually less than the cost of building the home.

“This is not only unfair and unreasonable, but it perpetuates the cycle of declining home values, drives more home owners underwater, harms local economic activity and acts as an obstacle to the recovery of the housing market,” said Nielsen.

These appraisal practices are a major contributing factor to the current acquisition, development and construction (AD&C) lending crisis that has choked off credit for home builders and threatens to prolong the current housing downturn.

Falling appraised values for land and subdivisions under development have led some financial institutions to stop lending to developers and builders, to demand additional equity and even to call performing loans.

Since Sept. 2009, NAHB has held four appraisal summits in Washington with representatives of federal banking regulators, the appraisal industry, the housing finance industry, the real estate and housing sectors and others to find solutions that will allow appraisers to develop realistic valuations based on sales that are truly comparable.

The need to give top priority to addressing the complexity of property valuations in distressed markets and impediments to the flow of appropriate information on homes between appraisers and interested parties was discussed during the most recent summit, which occurred on Oct. 19.

“Major reforms in appraisal practices and oversight are needed to ensure that appraisals accurately reflect true market values and don’t contribute to price volatility or harm aspiring home owners and move-up buyers,” said Nielsen. “We will continue to work with all stakeholders in this debate to find solutions.”

With the decline in home prices appearing to have ended or be coming to an end in most parts of the country, resolving the appraisal and credit crunch issues remain a top priority for the association.

NAHB’s latest Improving Markets Index has shown modest signs of improvement in scattered housing markets where employment is gaining and distressed properties are not as numerous.

New-home construction stands ready to serve as an engine for economic recovery. Building 100 single-family homes creates more than 300 full-time jobs and provides $8.9 million in federal, state and local tax revenues.

“Resolving inappropriate appraisal practices and restoring the flow of credit to home builders will not only help to put America back to work, it will provide badly needed tax revenues that is essential for local governments to support schools, police and firefighters in communities across the land,” said Nielsen.

NAHB: Index Shows Continued Improvement for Apartment and Condominium Market

The Multifamily Production Index (MPI), a leading indicator for the multifamily market, released by the National Association of Home Builders (NAHB) today showed continued improvement for the fifth consecutive quarter for the apartment and condominium housing market.

The MPI, which tracks the sentiment of builders and developers about the conditions of the multifamily market on a scale of 0 to 100, increased from 44.4 in the second quarter to 47.3 in the third quarter—the highest reading since the fourth quarter of 2005.

The index provides a composite measure of three key elements of the multifamily housing market: construction of low-rent units, market-rate rental units and “for-sale" units, or condominiums. The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse. In the third quarter of 2011, the MPI component tracking builder and developer perceptions of market-rate rental properties recorded an all-time high of 63.8, while low-rent units remained steady at 50.1. For-sale units rose to 31.9, the highest recording since the second quarter of 2006.

“Multifamily construction continues to be the bright spot in the overall housing market,” said NAHB Chief Economist David Crowe. “While household formations have been below trend, those who are forming new households are becoming renters and this trend is likely to continue until consumers’ confidence returns.”

“Apartments and condominiums play an integral role in the overall housing market, now more than ever,” said Stillman Knight, chairman of NAHB’s Multifamily Council Board of Trustees and president and CEO of the Knight Company of Alexandria, Va. “The construction of these units not only brings jobs to local communities, but also provides an adequate stock of housing for areas with rapid population growth.”

Looking forward to the next six months, builder and developer expectations improved in the third quarter for market-rate rental properties and for-sale properties, up to 67.2 and 37.3, respectively. Expectations for low-rent units decreased slightly, to 50.2.

The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perception of vacancies, decreased from 36.1 in the second quarter to 35.1 in the third quarter. With the MVI, lower numbers indicate fewer vacancies. The MVI has improved considerably since reaching a peak of 70.2 in the second quarter of 2009.

“NAHB’s Multifamily Production Index and Multifamily Vacancy Index have emerged as leading indicators for the multifamily market,” Crowe said. “For example, the MVI began to improve strongly in the third quarter of 2009, one quarter before a similar trend emerged in the Census Bureau’s rental vacancy rate for buildings with at least five apartments. Although the Census shows a slight surge in rental vacancy rates in the latest quarter, our survey suggests that this will only be a temporary setback.”

For data tables on the MPI and MVI, visit

IBS: Special Session with Fed Chairman Ben Bernake Planned

Attendees of the 2012 International Builders Show (IBS) will have the exclusive opportunity to hear Federal Reserve Chairman Ben Bernanke deliver remarks during a special session at the National Association of Home Builders’ (NAHB) board of directors meeting on Friday, February 10 at 12:30 pm.

The event, held in the Valencia Ballroom of the Orange County Convention Center, will have limited general seating available on a first-come, first-served basis.

Friday, Feb. 10, 2012
2:30 p.m. ET

Orange County Convention Center
Valencia Ballroom
Orlando, Fla.

The special session with Chairman Bernanke is open to all registered attendees of the 2012 International Builders Show; however seating is limited and available on a first-come, first-served basis. To register for IBS, please visit

NAHB: Persistent Tight Lending Conditions for Home Builders Threaten Economic Recovery

The commercial banks on which home builders and developers largely rely to finance their projects continued in this year’s third quarter to hold tight reins on acquisition, development and construction loans (AD&C), according to the most recent quarterly survey by NAHB’s Economics and Housing Policy Group on the availability of credit to the housing industry.

“Restoring the flow of credit to housing is critical for the industry to rebound, provide jobs and boost the economy,” said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev.

More than half of the single-family builders and developers surveyed by NAHB indicated they had decided to put any new construction or land activity on hold until the financing climate improves.

This has broad repercussions for housing and the economy. With inventories of new homes nearly depleted in many markets, builders should be gearing up to meet demand, create new jobs and keep the expansion moving forward. Unfortunately, production remains stymied because builders in these locations cannot get credit from lending institutions to begin work on new homes.
In normal times, housing accounts for more than 17 percent of the nation’s gross domestic product. Constructing 100 new-homes generates more than 300 full-time jobs and $8.9 million in local, state and federal tax revenue that supports local schools and communities across the land.

“There can be no economic recovery without a housing recovery,” said Nielsen. “While NAHB’s Improving Market Index shows several housing markets around the nation are slowly starting to mend, a full-fledged revival will not take hold until we resolve the ongoing credit problems for home builders.”

NAHB has been working to obtain a legislative solution on Capitol Hill.

On May 5, Reps. Gary Miller (R-Calif.) and Brad Miller (D-N.C.) introduced H.R. 1755, the Home Construction Lending Regulatory Improvement Act of 2011, to address specific regulatory impediments to the flow of credit needed by home builders. That measure currently has 80 cosponsors, and NAHB is seeking a companion bill in the Senate.

Of the minority of builders who sought AD&C loans in the third quarter, few saw improvement in the lending climate over the previous quarter and a significant share saw conditions continue to deteriorate.

Forty-eight percent of those polled said they had looked for financing for single-family construction in the third quarter.

Only 8 percent said the availability of financing for single-family projects was getting better (compared to the previous quarter), 61 percent said it was unchanged and 31 percent reported it had worsened.

Survey respondents who indicated that lenders were clamping down further on credit availability in the third quarter noted several ways in which the tightening was occurring:
  • 77 percent said lenders were reducing the amount they were willing to lend. 
  • 75 percent reported seeing the allowable loan-to-value ratio being lowered. 
  • 66 percent found lenders who were not making any new real estate loans. 
  • 63 percent said they encountered lenders who were requiring personal guarantees or collateral not related to the project.
Lenders most often told builders they were tightening on loans because the regulators were forcing them to do so.

Sixty-eight percent of those surveyed said they were given this reason for restrictions on new AD&C loans and 52 percent heard it was the reason for tightening on outstanding loans.

Monday, December 5, 2011

New HBA Member Service: Quarterly Economic Report

Your HBA of Greenville has released its first quarterly economic report.  Produced in partnership with RESH Marketing and sponsored by Clark's Services, the report will provide HBA members with up-to-date information about the Upstate housing market in an easy-to-consume five-minute video format.

The report is presented by Joseph VonNesson, PhD., CMP, Director of the Real Estate Center at the University of South Carolina Moore School of Business.

A key finding in this quarter's report is the relatively low component of new construction to existing construction in total home sales.  At present, just 17 percent of total housing sales are new construction in Greenville, compared to 25 percent or more in other markets in South Carolina.

Watch the full Upstate Third Quarter 2011 Economic Report at by clicking here.