MARCH 23, 2023 – The most critical issue the Fed has to address right away is stopping the outflow of deposits from banks. It started 2 quarters ago and accelerated with the SVB debacle. The outflow continues.
The consumer is aware of the risk of having money in banks and can get a 4%+ interest rate in money market funds. Why keep money in a bank at 0.5%?
Money market funds have a sudden excess of funds and are using the Overnight Reverse Repo Agreement market to park those funds with the Fed. This is where the Fed can start QE4 – put a limit on how much money can be deposited in the ORRA.
If they use this tool, they will be making a major statement and shift in policy. Watch for this. It might be like March 2009 when they went full throttle with QE and the stock market bottomed never to see that level again.
We shall see….
Shalom,
The Mann
Category Archives: Mann Overboard
After a 2-year hiatus, the Mann Overboard blog is back. This blog will cover anything and everything that comes to mind. There will be market forecasts. Suggestions regarding interesting web sites, books, or topics I think readers should check out. My continual diatribe on the real estate appraisal industry and all of its wrongs. My support for a new real property valuation profession, adopting Mortgage Lending Value in America, creating Real Property Risk Ratings in America, and introducing readers to the concept of Socionomics. Other topics will surely arise.
Feedback will be limited to approved site visitors. This is not to limit disagreement – different ideas are needed for us to advance any concept we discuss. I just want to keep the content professional. Replies whining about old subjects like AMCs and what banks have done to the industry and such don’t get us anywhere. And simpl
AN EVERYTHING UPDATE :)
UPDATE – MARCH 23, 2023 – A few items to update regarding the post below and other recent posts. I had heard that 1/3 of bank deposits are uninsured. I just saw a chart from the FDIC that says about 1/2, or about $9 Trillion (!), in deposits are uninsured. No banking system could withstand even 20% of that amount being withdrawn. Money continues to leave banks as consumers can get 4%+ in money market funds and T-Bills versus 0.5% in banks. With the inverted yield curve, banks are unable to pay 4%-5% on deposits in line with the Fed Fund Rates.
Here is a list of banks with the most unrealized losses in relation to their total equity capital. Remember, the Fed is letting banks get funding on their underwater bonds at full par value. So, this doesn’t necessarily mean a run on deposits at these banks will make them go under. But, they are on thin ice. Customers Bancorp, Inc., First Republic Bank (been in the news for a week), Sany Spring Bancorp, Inc., New York Community Bancorp, Inc., First Foundation, Inc., Ally Financial, Inc. (by far the worst ratio….and like CACC, in the auto loan business), Dime Community Bancshares Inc., Pacific Premier Bancorp Inc., Prosperity Bancshares Inc., and Columbia Financial, Inc. The late-SVB was in this group, too.
The more I understand what the Fed has done, it appears this is what I would call IQE1 – Indirect Quantitative Easing 1. Leave it to us Baby Boomers and our invention of creative financing to now come up with an Indirect QE:) Gotta love us:) In the end, it will probably be referred to as QE4. See my next post as to a term you will want to watch for to know when the Fed has gone all in on the real QE4.
As an aside, the Regional Bank ETF hit a new low by a few pennies today. The market is still sorting out which banks to sell and which to buy.
Also, I mention in the original post below that the market is telling the Fed to lower rates 150bps in 2024. I heard today that has been moved up and the market wants the Fed to pivot in 3-4 months and start lowering rates. No pressure on Powell, eh!
MARCH 21, 2023 – As the 1st Quarter comes to an end, this seems like a good time to update my thoughts on forecasts on many items. So, here goes. No particular order.
BANKS – As this has been the hot topic for the last 10 days. It seems like everyone is predicting hundreds of bank failures to come. The Texas Ratio shows 200 banks at risk. Folks we have entered QE4. I think the last QE was QE3. Correct me if I am wrong. If Vegas gave me good odds, I would bet no more American banks would fail this year. Yes, you heard me right. As there might be some small banks that are in marginal shape, I am thinking a better bet is less than 5 or so banks will fail. I am thinking total assets of banks that might fail will be under $50 Billion. Maybe much lower. There are 10 banks with relatively high CRE ratios. But, their reserves are likely high enough to handle upcoming CRE losses. And the Fed thru QE4 already shored up the weakness in their Balance Sheets. I learned from QE1 thru QE3 that the Fed isn’t going to allow our markets to suffer for too long. As the saying goes, buy when there is blood in the streets. That occurred on Monday March 13th. The S&P Regional Bank ETF I mentioned bottomed that day at 41.92. It has been higher since and closed today at 46.07. Up 10%. No, you wouldn’t have bought at the bottom tick. But, you probably would have bought very close to it as it was such an obvious moment in time. I have been wrong before. But, I can see that panic bottom not being violated and the ETF continuing higher this year. The entire world is anti-regional banks. That is when you should be pro-regional banks.
INFLATION – Geez this will get extremely long if I write as much as I did about banks:) I still see a July 12th annual reading of 3% or lower. 2% is still likely. I will throw out something you likely have not heard from anyone. There is a slim chance of a NEGATIVE inflation (aka deflation) reading at yearend or, more likely, in 2024. That isn’t a prediction I would lay too much money on. But, if you gave me the same odds that FDU had of beating Purdue in The Big Dance, I would put some money down.
FED FUNDS RATE – Everyone is asking this week what will the Fed do at the upcoming meeting. It is truly a 50/50 chance they will not make a change or raise the rate 25bp. In the end, there is minimal difference. The difference is more psychological. My guess is they make no change and defer such to April. The market was telling them they had 50bp more to go. Now it is 25bp. Let’s wait a month and see what the market says after things have calmed down. A surprising item I saw was the market is telling the Fed to DROP rates 150bp in 2024. Although the market forecast last year’s rate increases early in the year, I think it is a bit early to put much weight into the 2024 message. Also, remember, the average time between the first rate decrease and the last rate increase is 4.5 months. Since, we will likely have the last increase in March-May, it would be difficult to have a decrease by yearend. Again, give me FDU odds, and I would take a chance on a decrease in November or December.
THE BIG SHORT 2 – As I posted last August, this cycle’s ‘big short’ was auto loans. As of Yearend 2022, $20 Billion of Generation Z and Millennials auto loans are over 90 days past due. They need to watch a classic cult movie of the early 1980’s – Repo Man. They can probably stream it:) Digressing, my uncle was a repo man. I went out one night in Fort Lauderdale with him getting cars. Scariest night of my life. Back to now….Also, for 20% of Generation Z, over 20% of their after-tax income goes to a car payment!!!! Insanity. Of course, I am sure it is like their college loans and a gun was put to their head and they were forced to take on this debt;) SCOTUS will be listening to a case in 2024 about Biden wanting to forgive auto loan debt. Have some ethics. Have some morals. Pay your debt even if it takes the rest of your life!!! The one stock I mentioned was Credit Acceptance Corporation (CACC). Its all-time high was 703.27. Its bottom to date was at the beginning of year at 358.00. That is a 49% decline. At today’s close of 415, it is down 41%. That is far in excess of the DOW being down 12% from its all-time high. Not a bad call for those who actually played The Big Short 2.
BITCOIN – There is a current setup that is similar to two times in the past that took Bitcoin up over 60x and then over 20x. As assets soar in price, it becomes more difficult to have the same huge percentage increases. So, if this setup plays out, then maybe a 5x-10x move over the next 1-3 years is possible. From the recent major low around $16,000, that would be $80,000-$160,000. This will take some time to play out.
STOCKS & BONDS – It seems like everyone is looking for a recession this year. Everyone is expecting the stock market to fall apart. As I have posted on here many times, 2022 was the recession. In 2022, the global loss for stocks and bonds was about $36.5 Trillion (!!!). In comparison, the maximum loss in 2008 was about $23.5 Trillion and in 2020 was about $24.0 Trillion. What more do people want? A CRASH 50% larger than what occurred in 2008 isn’t enough? Since I seem to be in the mood to put out crazy forecasts, let’s not stop here. By yearend, I can see the DOW above 38,000 and the S&P 500 in the 4800-4900 range. 40k in ’24 has a nice ring to it. I would be interested if you see anyone else forecasting the DOW above 38k or S&P 500 above 4800. Those who know me know I have been a bear my entire life. I have always lived for downturns. For me to be this bullish, is beyond amazing to even me. A question I always want to ask analysts is what would it take for you to say your forecast is wrong. In this case, that would be the DOW breaking below last October’s lows at 28,660. If that occurs, the above is out the door.
OIL – I honestly haven’t looked at a chart since I sold all my oil and gas (aka pro-plant stocks) holdings the day oil hit $137 per barrel. This was about a week into the Russia/Ukraine dustup. The opposite of buy when there is blood in the streets is sell when everyone wants to buy something. That was the day of the high and oil has recently traded as low as $70. Almost a 50% decline. Do you remember a year ago when everyone said we were in for a major shortage of oil and prices would go even higher? What are those people saying now? This is the first time in my life I have not owned oil and gas stocks. It is getting tempting after a 50% decline. I may check into the charts and see what is up. If I do, I will post my thoughts here. In the interim, please boycott EVs and buy only gas vehicles and devices and help the plants around the world flourish and feed its 8 billion people. I always tell people that whether it is bonds or corn or cattle or oil it is us futures traders that dictate what the price is and what consumers will pay. It is not supply and demand. It is not government actions. Commodity traders are the ones in control.
HOUSING – I am exhausted writing the above. I will cover housing in the near future. There are mixed signals. But, in general, I am feeling my expectation of unexpected market strength is playing out perfectly. NAR’s price index just declined on a year-over-year basis for the first time since 2012. However, AEI’s HPA saw a recent monthly increase. Also, Pending Home Sales are up 9.3% in the two months thru January. That is the dead of winter and home sales are up almost double digits. Remember, a year ago, the housing market was super strong. So, this isn’t working off of low numbers. Looking at a chart since 2001, when Pending Home Sales turn up they don’t usually turn back down. My prediction re mortgage rates has come very close to occurring. We have not been below 6% yet. This decline is getting long in the tooth and I am watching the charts to see when the bottom is in place and we turn back up. Although the rates have been down ever since I predicted such, it is looking like a move below 6% might not happen. Still a chance though.
You’re tired. I am tired. I hope you find the above of interest. Even eye-opening. Forecasts obviously do not come true 100% of the time. Keep that in mind. I certainly do:) I am disappointed with even a single incorrect forecast. I give it my best to be right as much as possible and to admit when I am wrong. I rarely see the pundits come out and say I was dead wrong. They should be forced to do such.
Always glad to hear from you. Please email me with any thoughts you have. Any charts or data you see that I might be interested in. I am at GeorgeRMann@Aol.Com.
Shalom,
The Mann
INFLATION FORECAST
MARCH 15, 2023 – This month treated me better. As I wrote last month, the data suggested annual inflation at 5.6%-5.7%, but I thought 6.0% was more likely. It came in at 6.0%.
The 3-month annualized inflation rate is 4.3%. The 6-month annualized inflation rate is 3.2%. Both figures are still much lower than the annualized rate (6.0%) and thus indicate the annual CPI should continue to decline.
Based on the data, my prediction for next month’s figure is 5.6%-5.7%. However, my gut tells me it may be much lower in the 5.1%-5.3% range.
As for the July 12th forecast, the data now suggests a ceiling around 3%. However, the odds for a figure around 2% are starting to decline.
Shalom,
The Mann
P.S. I did want to mention that the market has told the Fed another 25bp rate increase is acceptable. After this week’s bank debacle, there is a decent chance the Fed will forego an increase this month. A tough call for Mr. Powell. 25bp is minor anyway. It is more about the action than the amount at this time. We shall see.
PRUDENTLY CONSERVATIVE VALUE IS THE NEXT MORTGAGE LENDING VALUE
MARCH 14, 2023 – The European Union appears to be headed towards adopting the ‘Prudently Conservative Valuation Criteria’ (PCVC) in accordance with Basel III. The concept is similar to Germany’s Mortgage Lending Value (MLV). However, the EU didn’t want to simply adopt a German concept.
For those interested in the concept, please read the article on Pages 6-10 of the latest issue of the European Valuer.
https://tegova.org/static/ea861b1ab7eae74037bb22655c7bc2fb/European%20Valuer%20(29)%20March%202023%20(desktop%20version).pdf
As expected, they make it clear that market price (what American appraisers estimate) and market value (I only know of one American appraiser that has estimated such in an assignment) are often different. What is new to me is they say value and market value are different. I will need to read up on that myself.
In one of my other posts I recommend that the FDIC deposit insurance be terminated as a way to make financial institutions safer. Another way would be to mandate the use of Mortgage Lending Value (MLV) instead of Market Value.
I hope you find the article interesting.
Shalom,
The Mann
SILICON VALLEY BANK SUPPORTS MY SUGGESTION
UPDATE MARCH 15, 2023 – An interesting investment class. Over the past 10 years, this is how this asset class has moved. From June 2013 to July 2016 it went up 26%. A simple annual increase around 8.5%. From July 2016 to October 2018 it declined 21%. A simple annual decline around 10%. From October 2018 to July 2020 it went up 33%. A simple annual increase around 18%. From July 2020 to October 2022 it went down 34%. A simple annual decline around 15%. That is a sum of 114% in moves up and down, which equates to about 11%/year. If you could have only timed those moves, you would have made a killing. As an investor, how would you rate this asset class? Low risk? Moderate risk? High risk? The point is the next time someone says U.S. Treasuries are a ‘safe’ haven, tell them about the above data. The next time someone says U.S. Treasuries represent a ‘safe’ rate of return, tell them about the above data. The above movements were made by the 30-Year U.S. Treasury Bonds. With the yield over the past 10 years probably averaging around 3%, that means you either gained or lost 3x-4x that simply due to the movement of yields!!!! Our government made treasury bonds act like a risky asset. It is not a low-risk asset. It is doubtful it ever will be again.
UPDATE MARCH 14, 2023 – We will see if Monday’s low in the SPDR S&P Regional Bank ETF (Symbol: KRE) at $41.92 is the panic low for banks. If you want to see a neat chart of an index slowly going over the waterfall and then collapsing look at KRE for the past month. You can see people were bailing out well before last Thursday when the news about SVB became a headline. As an aside, for those curious about this, I heard that depositors at SVB had requested $42 Billion in withdrawals. As many banks loan out over 100% of their deposits, SVB obviously didn’t have the funds available without selling their unhedged, unrealized losses 30-year treasury bonds. BTW, KRE declined 46% from its all-time high in late 2021. That is when the market predicted interest rates would increase significantly. It declined 36% in the past few months. This is into the low on Monday.
The pundits are predicting the next sector to get hit hard will be commercial real estate (CRE). And banks with a large portfolio of CRE loans may be the next to go under. So, for those interested in the banks with the highest CRE Loans/Total Assets ratios they are as follows. The only one above 50% is Valley National Bank. Home Bancshares and Glacier Bancorp are just below 40%. Signature Bank was at 30%. EastWest Bank is at 30%. Those between 20% and 30% include Webster Financial Corporation, First Citizens Bancshares Inc., M&T Bank Corp, Prosperity Bancshares, Western Alliance Bancorp, and Central Pacific Financial Corp. That doesn’t mean these banks will go under. Many other factors come into play. Most importantly, how large on their reserves. What are their Tier 1 Capital Ratios. That said, history shows that banks with the highest CRE Loan ratios are more likely to fail in a significant economic downturn. I have not looked at their stock prices. But, I wouldn’t be surprised these stocks are down the most already. It isn’t like this is new news to investors. If any of the above close down, you at least knew about it as of today:) FYI, SVB was down near 0% for this ratio. That wasn’t their weakness obviously.
UPDATE MARCH 13, 2023 – Total deposits in American banks is about $18 Trillion. I heard that about 1/3 of those deposits are NOT insured. Thus, about $6 Trillion in deposits at financial institutions are at risk if banks close in mass. If those deposit holders decide the risk of losing 100% of their money is too real and start withdrawing their funds, there simply is no way our banking industry can survive. To return those funds, banks would have to sell their treasury bonds and realize the unrealized losses (about 30%-40% of the original purchase price) they have – that is what was happening to SVB in its last days. Somehow the FED has to convince the holders of the $6 Trillion in uninsured bank deposits not to move their funds elsewhere. If they fail, the 2008 Crisis will look minor in comparison. I think they will succeed…for now. Afterall, where would the $6 Trillion move to that would be any safer than where it is now? Fun times eh:)
MARCH 13, 2023 – I have long said that the simplest solution to prevent financial institutions from making bad loans, poor policy decisions, etc., is to eliminate FDIC insurance for deposits. That simple.
If the public knew that every dollar they put in a bank or credit union could be lost, they would be extremely careful where they deposited their money.
Financial institutions would have to be beyond 100% transparent and show convincingly they were 100% safe. There would be no liar loans, 120% LTV loans, etc.
The companies that deposited more than $250,000 in SVB deserve to lose their money. How can an unnamed company put $480 million of cash in one bank? That CFO wouldn’t have a job if I were in charge. All of these startups are crying about their deposits at SVB. Did they overlook the FDIC Insurance print on every SVB document? $250,000…hello…$250,000 maximum. What is it you don’t understand about that!
I seriously doubt we will get rid of FDIC deposit insurance in my lifetime. But, it would solve alot of problems if we did.
Lastly, SVB was unique in that it had less than 10% of its deposits from retail customers and chose not to hedge its interest rate risk. The data does not suggest any other banks in America are like it. Signature Bank of NY was closed over the weekend and it also had less than 10% of its deposits from retail customers. But, I do not know if it refused to hedge its interest rate risk. The only remaining bank with less than 10% of its deposits from retail customers is Citigroup. But, they have probably been like this for 40+ years as they mainly deal with governments around the world.
I do not expect any other banks to go under from a run on their deposits. As usual, we shall see.
Shalom,
The Mann
CLIMATE CHANGE HOAXERS SHOULD ADMIT DEFEAT
MARCH 12, 2023 – Worldwide Carbon Dioxide emissions hit another record high in 2022. Plants, and the people and animals that eat them, gave thanks to all of us that do our part to increase Carbon Dioxide emissions.
In the article (link below) it is laughable that the world needs to reduce emissions by 40% by 2030. With it increasing every year, I would bet emissions will be HIGHER in 2030 than 2022. All of the efforts to reduce emissions, ESG bull*&*(, etc. have failed. They will continue to fail.
https://www.washingtonpost.com/climate-environment/2023/03/02/emissions-hit-carbon-dioxide/?utm_source=facebook&utm_medium=news_tab
It is time for these people to simply admit it is too late to save the planet (in their eyes). Stop creating programs that simply increase costs for the poor while the rich make money off of them. As they say, follow the money. The masses are being used under the false guise of saving this planet.
For those that are Chirstian, Jewish, or Muslim, you already know how the story ends. Humans are on this planet (sorry, Musk, we won’t be living on Mars in the end) until the end of existence. The planet obviously takes care of itself and humans do not get wiped out by warmer temperatures in the future.
The best way to deal with a climate change hoaxer is to just tell him/her that it is too late. Tell them to get over it. Find another hoax to waste their time on.
Viva La Petro!
Shalom,
The Mann
JEREMY BAGOTT EXPOSES NPR AND FREDDIE MAC
FEBRUARY 24, 2023 – Mr. Bagott was kind of enough to give me permission to post his article to my blog. I could not say it any better than he has. The studies continue to pile up that PROVE there is no bias (systemic or otherwise) in the real estate appraisal industry. Of course, the Fake News Media and racist organizations put out misleading headlines to fool the masses. I hope you enjoy Mr. Bagott’s article.
Shalom,
The Mann
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Contact: Jeremy Bagott, MAI, AI-GRS
Tel: 805-794-0555
email: jbagott@gmail.com
*** FOR IMMEDIATE RELEASE ***
FREDDIE’S SLANTED STUDY, NPR STORY RECALL NOTABLE ACADEMIC HOAX
VENTURA, Calif. (February 24, 2023) – Almost 30 years ago, Alan Sokal, now a professor of mathematics at University College London, perpetrated a memorable hoax. He submitted a pseudoscientific article to a cultural studies journal called Social Text. By design, his paper was strewn with nonsense. Titled “Transgressing the Boundaries: Towards a Transformative Hermeneutics of Quantum Gravity,” the article held that physical reality was merely a social construct.
The nation’s 80,000 state-licensed real property appraisers will recognize elements of Sokal’s hoax as crusaders — appointees at places like the Federal Housing Finance Agency and the U.S. Department of Housing and Urban Development – perpetuate a false narrative that is weakening a critical guardrail in the nation’s $11 trillion mortgage market.
At the time of Sokal’s hoax, so-called “postmodernists” in higher education were waging a crusade against scientific objectivity. The “science wars” of the mid-1990s saw academics in the fields of cultural studies, comparative literature, media studies, cultural anthropology, feminist studies, and science and technology studies attacking scientists. Most in the former group knew almost nothing of the sciences they criticized.
Sokal’s aim was to see whether such a hoax paper would be published if it 1) sounded legitimate and 2) stoked the vanities and ideological preconceptions of the editors.
As professor Sokal predicted, his article gained publication in the 1996 spring/summer issue of Social Text, published by Duke University Press. His paper briefly became the toast of certain academic circles, but it was never peer-reviewed by an actual scientist.
Sokal quickly set the record straight in the May 1996 edition of the Lingua Franca journal in the article “A Physicist Experiments with Cultural Studies.” He concluded that editors at the first publication ignored the required intellectual rigor of verification and “felt comfortable publishing an article on quantum physics without bothering to consult anyone knowledgeable in the subject.”
Fast-forward to September 2021. Mortgage giant Freddie Mac scoured 12 million appraisals between 2015 and 2020 and published a study that found the sales of homes in black- and Latino-majority census tracts were more likely to appraise below the negotiated sale price than sales of homes in white-majority tracts.
While appearing to reveal something sinister about the nation’s real property appraisers, buried in the report was the begrudging acknowledgment that the comparables selected by appraisers to value homes owned by people of various racial groups tended to be reconciled within a range that differed little from one another statistically.
Tucked well into the report was the recognition, “Appraisals for properties in Black and Latino tracts tend to be slightly closer to the lower end of the [comparable] range. But the report then conceded, “the average dollar impact is less than $500.”
An impact of $500 or less off the median U.S. home sales price of $428,700 around the time of the study represented a departure of about 0.1% or less. The amount fails to rise to even a rounding error. Analysts at the mortgage giant seemed to be grasping at straws to find something – anything – wrong with the appraisals but, as they conceded, couldn’t. Systemic bias, the study found, was a phantom issue.
So, instead, the study trumpeted a finding that 7.4% of appraisals in majority-white census tracts appraised below the property’s negotiated sale price, while 12.5% appraised below the negotiated sale price in black-majority census tracts with an even wider 15.4% gap for Latino-majority census tracts.
Since Freddie Mac concedes it found no problem with the valuations beyond a statistical aberration, its finding of a contract-price-vs.-actual-value gap points to a more complicated issue in which brokers in minority areas seem to be more likely to advise buyers to agree to values that were above market. Whether this is due to inexperienced buyers, inexperienced brokers representing them, a greater proportion of brokers conflicted by dual agency, sellers with unrealistic expectations, home sales kept out of MLS systems or the prevalence of so-called affinity schemes is anyone’s guess.
Freddie dishonestly left this question unacknowledged.
The 2007-2008 financial crisis exposed the degree to which low-income borrowers were preyed upon by bad actors. Fannie and Freddie drove the exploitation by buying or guaranteeing so-called Alt-A, negative-amortizing and stated-income mortgages that proved toxic to minority homeownership in communities from Modesto, California, to Hartford, Connecticut.
But back to Freddie’s study. On the heels of its release, editors at National Public Radio misreported the findings. NPR topped the online edition of its article with the headline, “Black and Latino Homeowners are About Twice as Likely as Whites To Get Low Appraisals.” The problem? Freddie never called the appraisals “low.”
While the Freddie Mac study finds no evidence of undervaluation, the NPR story about the study somehow does. NPR’s headline should have read, “Minority Buyers Twice as Likely to be Advised to Overbid on Homes.”
Both the Freddie Mac study, along with the misreported NPR story, were seized on by disrupters in government. This group is seeking to eliminate appraisals in federally related mortgages in a misguided attempt at erasing the racial wealth gap in America. It’s the equivalent of eliminating reading tests as a way to solve illiteracy. Quietly stoking these fires have been the nonbank lenders, the fintechs, the homebuilders and the Realtors, who have been trying to weaken appraisers for decades related more to issues like bonuses, commissions and the transference of risk to the U.S. taxpayer than ideology.
The mortgage giant, which is under federal conservatorship, is no doubt being pressured by its regulator, the Federal Housing Finance Agency, to play ball and adhere to Executive Order 13985, an early Biden administration directive titled “Advancing Racial Equity and Support for Underserved Communities Through the Federal Government.” Freddie’s study appears to have been shaded by an overarching need to find something.
Commenting on the study was Michael Bradley, a senior vice president at Freddie Mac. “An appraisal falling below the contracted sale price may allow a buyer to renegotiate with a seller,” he told NPR.
But then he seemed to come out in favor of minority buyers overpaying (and overborrowing) if that’s what it takes, “it could also mean families might miss out on the full wealth-building benefits of homeownership or may be unable to get the financing needed to achieve the American dream in the first place.”
Or perhaps Bradley was just fuzzy on which party in the transaction would be experiencing the American dream and the full wealth-building benefits of homeownership – the seller receiving a double-digit premium above the home’s market value or the buyer, who appears to be at a disadvantage in Bradley’s world view.
Professor Sokal no doubt saw the publication of his hoax paper with some degree of vindication and ironic satisfaction. Appraisers, who have been maligned by Freddie’s study and NPR’s incompetence in reporting it, are unsatisfied and haven’t yet been vindicated.
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Jeremy Bagott is a real estate appraiser and former newspaperman. His most recent book, “The Ichthyologist’s Guide to the Subprime Meltdown,” is a concise almanac that distills the cataclysmic financial crisis of 2007-2008 to its essence. This pithy guide to the upheaval includes essays, chronologies, roundups and key lists, weaving together the stories of the politics-infused Freddie and Fannie; the doomed Wall Street investment banks Lehman and Bear Stearns; the dereliction of duty by the Big Three credit-rating services; the mayhem caused by the shadowy nonbank lenders; and the massive government bailouts. It provides a rapid-fire succession of “ah-hah” moments as it lays out the meltdown, convulsion by convulsion.
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I WASN’T EVEN CLOSE
FEBRUARY 15, 2023 – Well, when you are wrong you need to admit it:) I felt all along my CPI forecast around 5.6% was too low. The CPI gets recalibrated each January and thus it is very tough to figure out where the ‘new’ numbers will fall. I sure didn’t expect them to be as high as they were. This is the first sign of inflation returning since last June.
The 3-month annualized inflation rate is 1.6%. The 6-month annualized inflation rate is 2.0%. Both figures are still much lower than the annualized rate (6.4%) and thus indicate the annual CPI should continue to decline.
My prediction for next month’s figure is 5.7%. My gut tells me it may be closer to 6.0%.
As for the July 12th forecast, the data now suggests a ceiling around 3%. The odds are still good for a figure around 2%.
Til next month…..forecasting will humble you. But, that is a good thing.
Shalom,
The Mann
P.S. I did want to mention that the market has told the Fed to do two more 25bp rate increases.
IT IS TIME FOR APPRAISALLAND TO FACE REALITY
FEBRUARY 3, 2023 – As I review appraisal reports, I continue to see appraisers remain in the fantasy AppraisalLand regarding cap rates and values. When asked about declining values and increasing cap rates, I get the NIMBY reply. No decline in our market. Must be occurring everywhere else:)
Although the GreenStreet CPPI is for investment-grade properties, it is still an indicator of the overall CRE market.
file:///C:/Users/Owner/Desktop/2023%202%20Feb%202%20-%20GreenStreet%20CPPI%20update.pdf
Overall prices have declined back to pre-pandemic levels. Have you been adjusting 2021 and 2022 sale prices downward at least 10%-20%? Have you been using cap rates 75-100bp higher than those shown in 2021 and 2022 sales? Are you forecasting residential lot and home price declines of 10%-20%+ (should be WAY more for finished lots) over the next 1-2 years? Have you adjusted absorption rates in 2022 downward 50%-75%+?
As me and my wife have joked for decades, in AppraisalLand every subdivision sells out quickly….office buildings in markets that literally haven’t seen vacancy rates below 10% since the 1980’s will lease up to 95%…on and on. Vacant land that has been for sale for 30 years will have a marketing time of 12 months. AppraisalLand is a very, very happy place to be in lol
It is up to reviewers to start pushing back hard on conclusions that don’t reflect current and future market conditions. Market Value is based on looking forward thru the windshield, not looking in the rear-view mirror. Data from the rear-view mirror must be adjusted to reflect current and future market conditions.
The above has been a broken record for my entire 36-year career. You would think the industry would learn from past cycles and change quickly when the market changes. It is not acceptable to wait until sales data is available to show the decline has occurred. Sales volume dries up in a declining market. By the time you have sales data the bottom has probably occurred and the market is starting to turn up. Reports like this one from GreenStreet provide the data needed to reflect current and upcoming market conditions. The data proving a decline has occurred and may continue is readily available. Use it.
I have a dream that one day AppraisalLand will no longer exist.
Shalom,
The Mann
THINGS I WOULD CHANGE IF I WERE KING FOR A DAY – BATTERIES
JANUARY 30, 2023 – What happened to A and B batteries? We have AAA, AA, C, and D. Why not A and B?
I would change AAA to A and AA to B. Then we would have A, B, C, and D. And the red-hair, freckle face, step-child of batteries the 9-Volt. We could make that the new E or just leave it as is.
I have a feeling I am the only one who wastes time thinking about these things:)
Shalom,
The Mann