Tag Archives: AEI

THE REMAINDER OF 2023 – BANKS & HOUSING

JULY 30, 2023 – This is my 3rd and last post regarding my forecasts for the remainder of 2023. Today’s topics are banks and housing.
BANKS – I have been saying since the SVB/SBNY closings that week after week goes by without any closures. Finally(!), last week we had a bank in Kansas get closed down by the FDIC. Also, PacWest was acquired. At this point, we remain closer to my forecast of 0-10 closures than the 176-200 closures forecast by many people.
As for CRE loan defaults, I have dealt with an office building (100% leased – it appears the borrower went bankrupt for some other reason) and two churches (same loan). We shall see if this picks up.
The Regional Bank Index (KRE) continues to soar and is about 20% above the low set the Monday after the SVB/SBNY closings. It is a full 40%+ (!) above its most recent low. Please let all of them people that told you that banks were going down the tubes what you think of their opinions! They have cost the masses a 20%-40%+ return – in less than 4 months at that!!!
As an aside, the market is saying that it does not believe there will be a CRE loan debacle for banks. Either not many CRE loans will default and/or banks are well prepared and capitalized to handle the defaults.
HOUSING – Let me just present a bunch of stats that clearly shows the strength of the housing market. New home sales increased 28.4% from July 2022 to June 2023. According to the Case-Shiller Index, home prices are within 1% of their June 2022 peak. Redfin reports home prices are up 2.1% from a year ago. The American Enterprise Institute’s (AEI) Home Price Appreciation (HPA) Index was up 0.7% month-over-month in June. It has been up every month this year. Annual appreciation is at 2.9% and projected to increase to 6%-7% by yearend. The Homebuilders Stock Index is up an incredible 60% (!)from last year’s lows. Those who forecast a crash in the housing market continue to be way off the mark.
SUMMARY – With both bank and housing stocks at their highs, the markets are saying both industries will do very well through year end and into early next year. There is no sign yet of a slowdown occurring for either industry. Sadly, all of those economists, market forecasters, and pundits have kept the public from making 20%-60%+ returns in these industries. But, that has been the norm since the world’s largest casino came into existence.
To sum up up the 3 posts:
Inflation will be stubborn and rise slightly over the remainder of the year – probably stay in the 3.5%-4.0% range.
The economy has a near zero chance of going into a recession. Yes, GDP will slow down from the amazing 2.2% rate that occurred in the first half of the year. I will put this hidden little sentence out there to refer back to in 12-18 months – The chance of a recession occurring looks to be 4th Quarter 2024 into 2025. I suspect that a year from now the broken-clock recession mongers will have given up and admitted the economy is strong, et al. Just in time to be wrong again:)
And, per above, banks and housing should be rock solid into the 1st Quarter of 2024.
I will provide updates per usual. But, will revisit the 6-month forecasts (for 1st and 2nd Quarter 2024) around the Holidays. Yes folks, less than 5 months til Christmas:)
Shalom,
The Mann

INFLATION FORECAST, BANKS & HOUSING

UPDATE – JUNE 20, 2023 – I saw a few items of data today in regard to housing. Here they are. No need to add any commentary.

Construction on new American homes surged 21.7% in May, as homebuilders ramp up building single-family homes to meet strong demand from buyers. Housing starts rose to a 1.63 million annual pace last month from 1.34 million in April.

Builder confidence in the market for newly built single-family homes in June rose five points to 55, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the sixth straight month that builder confidence has increased and is the first time that sentiment levels have surpassed the midpoint of 50 since July 2022.

I saw a chart of this index going back to 1985. Every time the index crossed back above 50 it went up to about the 70 level before putting in a major top. The thing is it took about 1-5 years to get to that new top. Slow, but steady it goes. If it follows history, that means we are in for an extended period of positive sentiment by home builders for at least the next few years. As a side note, there is at least a 50/50 chance of the index dipping back below 50 before resuming its upward trend. This would be a great head fake to keep the recession screamers pessimistic.

JUNE 14, 2023 – As forecast, inflation dropped about a full percentage point and will do so again next month.
The 3-month annualized inflation rate is 4.4%. The 6-month annualized inflation rate is also 4.4%. These figures are above the annualized rate (4.0%) and thus indicate the decline in the annual CPI is likely to reverse after next month’s figure is reported.
Based on the data, my prediction for next month’s figure is 3.0%-3.1%. I like the data and am confident the next reading will be in that range.
This will finally be the July 12th figure I forecast over 6 months ago. My original expectation of a sub 2% reading will be wrong. Albeit, 3% is alot closer than those that were predicting 10%+ this year.
As I mentioned last month, it looks like inflation will rebound in the second half of the year to 4%+. There are a few indicators that are pointing towards significant deflation (e.g. diesel prices down 30% yoy). If this occurs, there is a chance inflation can stay around 3%.
BANKS – Regarding banks, week after week goes by without any closures. At this point, we are much closer to my forecast of 0-10 closures than the 176-200 closures forecast by many people. I am lucky to have some incredible bank and credit union clients. Talking with them there has been almost no CRE loans going under. Even in good times, loans fail. So far, nothing significant has occurred. Yet, the world is predicting CRE loan defaults will be the next major shoe to drop. I just don’t see it. I will make a post with some numbers explaining why I don’t see the refi issue resulting in loan defaults.
The Regional Bank Index (KRE) has exploded and is about 7% above the low set the Monday after the SVB/SBNY closings. It is a full 27% (!) above its most recent low. And, you probably saw the headline that the stock market entered Bull Market territory (i.e. up 20%+ from its low) last week. I have been saying this was the case since just after the October lows.
HOUSING – The American Enterprise Institute’s (AEI) Home Price Appreciation (HPA) Index was up 0.7% month-over-month in April. It has been up every month this year. The Homebuilders Stock Index is up an incredible 50% (!)from last year’s lows. Those who forecast a crash in the housing market appear to be way off. As I forecast about a year ago, the housing market would slow way down and possibly go slightly negative (that has occurred in the hottest markets). A year later I am seeing a slightly improving market ahead.
SUMMARY – Sadly, if you have been waiting for the Recession of 2023 to occur (which as I have noted for 9+ months now, it was the Recession of 2022), you have already missed out on the stock market being up 20%, homebuilder stocks up 50%, and those dreaded bank stocks being up say 5%-25% from possible buying points. Even if a recession occurs later in the year (I still do not see two consecutive quarters of GDP being likely), the opportunity to make a large profit on your investments has already occurred. Plus, the stock market predicts the future 6 months out, and it is saying zero chance of a recession.
It seems like a longshot, but the wave theory I follow seems to indicate the possibility of a huge stock market rally directly in front of us. That is my interpretation. Regretfully, my idol who brought this theory to the forefront 44 years ago sees a huge leg down ahead. I hate disagreeing with him. We shall see how it turns out. The stock market has been in a boring trading range for several months now. It seems to be wrestling with the indicators that point up and those that point down at the same time. The future is never easy to predict:) Not even for the smart money.
Til next month.
Shalom,
The Mann

INFLATION FORECAST, BANKS & HOUSING

MAY 11, 2023 – As forecast, inflation didn’t change much last month. But, did fall below 5.0%. Significant declines will occur over the next two months.
The 3-month annualized inflation rate is high at 5.7%. The 6-month annualized inflation rate is 3.6%. These figures bracket the annualized rate (4.9%) and thus indicate the decline in the annual CPI should slow down after the next two months are in.
Based on the data, my prediction for next month’s figure is 4.1%-4.3%. I like the data and am confident the next reading will be in that range.
As for the July 12th forecast, the data now suggests a figure around 3.2%-3.4%. The odds for a figure around 2% are about nil, unless we have full blown deflation show up. Doubtful, but there are signs we may get surprise negative readings in the coming months. I will need to see it to believe it. After bottoming with the July 12th figure, it looks like inflation will rebound in the second half of the year to the 5%-6% range. That said, we will be far below the double-digit rates many people have been forecasting for the past year. However, this will make the Fed consider more rate increases. Something, the market is not pricing in at this time.
A bit of trivia. The annual CPI rate has decreased for 10 straight months. I am certain that streak will extend to 12 months. The only times such a streak occurred was in 1921 and 2012. Neither were around a recession or stock market crash.
BANKS – Regarding banks, week after week goes by without any closures. At this point, we are much closer to my forecast of 0-10 closures than the 176-200 closures forecast by many people. Pac West seems to be the bank on the hot seat right now. It is one of the ten banks I listed a few months ago.
The Regional Bank Index (KRE) broke down last week and is about 10%-15% below the low set the Monday after the SVB/SBNY closings. This is saying the market expects to see CRE loan losses (I am going to post about this soon) increase the remainder of the year. No surprise in that forecast.
HOUSING – The American Enterprise Institute’s (AEI) Home Price Appreciation (HPA) Index was up 1.4% month-over-month in March. I believe it has been up every month this year. NAR reported that home prices increased in 70% of metro areas in the First Quarter of 2023. The Homebuilders Stock Index is up a full 40% from last year’s lows. Those who forecast a crash in the housing market appear to be way off. As I forecast about a year ago, the housing market would slow way down and possibly go slightly negative (that has occurred in the hottest markets). A year later I am seeing a slightly improving market ahead.
Til next month.
Shalom,
The Mann

HOUSING AND AN ITEM OF TRIVIA

APRIL 19, 2023 – Let’s get the trivia out of the way. India has surpassed China in population. I didn’t know it was even close. Sort of reminds me of the day about 30 years ago when WalMart surpassed Sears and KMart (you youngsters are asking what is Sears and KMart 🙂 ) on the same day to become the #1 retailer. As for the housing market…
Freddie Mac said the 30-year mortgage rate declined for the 5th straight week – now at 6.27%. It is like pulling teeth to get it below 6%. But, regardless, it has been lower ever since the day I called the high last year.
According to the American Enterprise Institute (AEI), home prices increased for the 3rd straight month. This follows monthly declines from July to December 2022. As I have noted many times, the market predicts the future 6 months out. As an aside, I heard an analyst today say the market does not predict the future. It is people like him that I need so I can have someone on the other side of my trades:)
So, in regard to housing, the market peaked in December 2021. Thus, it said the housing market should peak in June 2022. If you read my posts last June, you will see I was screaming that a top was occurring by the very minute.
After a 40% decline, the same indicator bottomed in June 2022. Thus, predicting a bottom for housing in December 2022. Is it coincidence that the AEI home price index bottomed in December and has gone up for 3 straight months? Sure, let’s call it coincidence:) As an aside, the same indicator is up 35% from its low.
This is a great lesson on how the market takes advantage of the public. At the end of 2021, the smart money cashed out and enjoyed a 40% decline in housing stock prices. All along, the public was hearing every day how strong the housing market was. Then, for the 2nd half of last year while the public was hearing how the housing market was crumbling due to rising interest rates, the smart money made 35% on housing stocks rising. It is such an easy game to play. As long as the public always follows the news…and it will.
So, remember, this Fall the news will change from being negative on housing to being positive. Suddenly, the public will have found a way to sell their houses that had a 4% mortgage rate and buy a house at a 7% mortgage rate. Remember, the market predicted that news today – 6 months before you hear it from the pundits. Also, this is not the first time in history that people owned homes with mortgages at x% and years later had to sell and buy a home at a mortgage rate of X+3%. People adjust. Just buy a lower price home! Everyone acts like this is the end of the world having mortgage rates 3% higher. It isn’t. The sun continues to come up in the East every day.
As I mentioned last year, the decline in housing prices would be less than expected because of a lack of inventory. According to Redfin, the number of listings has declined at a double-digit rate for 8 straight months! Geez, are there any homes for sale anywhere! According to the NAHB, 1/3 of homes for sale are new construction. The norm is 10%. Do you think the market knew that would be the case when they started buying housing stocks last June? Yes, of course.
I said last year the public and pundits would be baffled by home prices not declining much, if at all, while the average mortgage payment was up 50%. Logically, home prices need to decline 33% to keep the mortgage payment the same. That has not and will not happen.
All of the above is explained by Socionomics (not the same as socioeconomics). Thankfully, I started following Robert Prechter 43 years ago and watched him develop the Theory of Socionomics. No matter how much is published on the subject, the public just will never learn to do the opposite of what they have been doing for thousands of years. I am sure you can find Mr. Prechter’s books on the subject on Amazon, eBay, etc. If you want to change the way you look at everything, look into this subject.
Lastly, I want to mention an interesting conflict in indicators that will play out this year with one side or the other being wrong. The stock market bottomed last October (so 6 months later is right now and I saw a survey that said the public is the most pessimistic about the future that they have ever been….of course, if you follow the stock market you knew that would be the case 6 months in advance!). It is up about 20% from its lows. It continues to say no recession this year and, in fact, the economy should improve. Now, the opposite is occurring with the tightening credit market. Virtually ever recession has been preceded by banks tightening credit. This indicator is screaming for a 100% certain recession in the second half of this year. So, either the smart money is wrong or this indicator will fail this time. Something has to give. I bet on socionomics and the smart money (aka stock market). Which side are you betting on?
Til next time…
Shalom,
The Mann

STEP 4 IN THE HOUSING MARKET HAS OCCURRED

DECEMBER 7, 2022 – On June 14th, I posted that Step 2 in the housing market cycle had occurred. Then on October 3rd, I noted we had entered Step 3. I also predicted we would get to Step 4 well before anyone expected.
Today, we are officially in Step 4. Home prices have declined nationwide. The acceleration is underway. Below is the factual data from the American Enterprise Institute. I will revisit this topic sometime in 2023 when I start to see indications of a bottom. In the interim, sit back and enjoy the bloodbath. A cleansing is always needed and we are getting one.
Shalom and Happy Holidays,
The Mann
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It’s official: The sudden reversal in home prices that began this spring has hit every one of America’s major metros with declines from their recent all-time peaks. What’s remarkable is the gigantic range of the pullbacks from region to region, and how the biggest losers are due to keep falling fast, while the metros that so far have taken the most modest hits should face only relatively small retreats from their pinnacles by the close of 2023.
That’s the evidence from a report just issued by the American Enterprise Institute’s Housing Center. Each month, the AEI measures the total change in home prices in 58 markets from their previous summits. The new chart shows that 45 of those cities crested to cap a synchronized spiral between April and June, though a handful peaked later, including Miami and North Port in July, and Greenville, Charleston and Cincinnati in September. For the first time in October, every one of the 58 markets registered a fall from their high points, ranging from -12.9% in San Jose to -0.5% in Memphis. ((Forbes))

BULL MARKET, INTEREST RATES, & MORE

DECEMBER 2, 2022 – The DJIA bottomed at 28,661 in October. Yesterday, it surpassed 34,393, which is a 20% rise and what the market defines as being a Bull Market. I didn’t see that mentioned anywhere in the media. Strange.
I read that the average time between when the Fed stops raising rates and lowers them for the first time is 4.5 months. It appears that the stock market is telegraphing such.
Bottomline, the market is saying things will be bad through the 1st Quarter of 2023 and then improve from there.
The 30-Year Fixed Mortgage Rate declined to 6.49% this week. This is down from the top I called when rates were 7.22%. And, we are already over halfway to my forecast of rates going below 6%.
As for the US Dollar, it has declined from the top of 114.778 in late September to 104.533 at today’s close. That is a hefty 8.9% decline.
The forecasts are going well. As everything ebbs and flows, I would expect there to be some movement against my forecasts before the trends resume.
One last tidbit of information that I found simply incredible. The American Enterprise Institute reported that ‘for every [25- to 54-year old] guy who is out of work and looking for a job, there are four guys who are neither working nor looking for work.’ That is insane. For those who try to say it is unfair to generalize that the younger generations do not want to work, the facts say you are wrong. The labor force participation rate is down to 62.3%, which is well below pre-pandemic levels. I wonder how the economy holds up when that rate goes below 50%?
My inflation forecast is 7.5% to 7.8%. The Fed is estimating 7.49%. I am not expecting this report to be shocking in any way. We will find out on December 13th.

Happy Holidays to all!

Shalom,

The Mann

STEP 3 IN THE HOUSING MARKET HAS OCCURRED

OCTOBER 3, 2022 – My June 14th post about Step 2 occurring said it would be easy to look back in 3 months and see that the housing market had peaked. Sure enough, 3 months later everyone can now see a top is in place and a correction has been well underway.
Step 3 is an acceleration in the slowdown of price appreciation. A summary of indicators follows.
The American Enterprise Institute’s (AEI) Home Price Appreciation (HPA) Index peaked at 17.0% in March and declined to 11.3% in August. AEI projects it will decline to 4%-6% by December.
The S&P Corelogic Case-Shiller House Price Index fell 0.4% on a month-over-month basis in July for the first time in 10 years. On a year-over-year basis, the increase in home prices decelerated by the most in the index’s history, said Craig J. Lazzara, managing director at S&P DJI.
Lastly, the FHFA House Price Index dropped 0.6% in July vs. June.
These are early signs that Step 4 will be upon us sooner than later. That is when the annual change goes from appreciation to depreciation. With mortgage rates soaring towards 7% the decline in home prices is more certain than ever.
What will baffle people is the continued low supply of available housing combined with prices declining. As I have long said, you don’t have to buy, but often you do have to sell. With a lack of buyers, sellers will continue to lower prices. In September, the number of households likely to buy a house in the next 6 months fell to its lowest level since 2010.
Shalom,
The Mann

AEI’s THOUGHTS ON THE PAVE REPORT

MARCH 25, 2022 – Below is the American Enterprise Institute’s thoughts on the blatantly racist PAVE Report that came out this week. AEI says it better than I ever could. So, I have no comments to add. Well, I did send them thanks for spelling White with a W. Finally, someone with integrity to avoid race baiting.
Shalom,
The Mann
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Comments on PAVE’s “Action Plan to Advance Property Appraisal and Valuation Equity: Closing the Racial Wealth Gap by Addressing Mis-valuations for Families and Communities of Color”
Reprinted below is a response from the AEI Housing Center to yesterday’s release of the PAVE report on appraiser bias:
On March 23rd, the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE), composed of thirteen federal agencies and offices, released its report entitled “Action Plan to Advance Property Appraisal and Valuation Equity: Closing the Racial Wealth Gap by Addressing Mis-valuations for Families and Communities of Color.”
Commentary on PAVE’s conclusion:
PAVE concluded that “Homeownership is often hindered by inequities within current home lending and appraisal processes, which research shows disproportionately impact people in communities of color.”
As noted in the Executive Summary, the report largely rests on three studies for its conclusion: (i) a report by the Brookings Institution, (ii) a note by Freddie Mac, and (iii) a blog post by FHFA.[1] In our work, we have issued lengthy critiques that discredit the first two studies (see our rebuttal to Brookings and to Freddie Mac) and now take the opportunity to respond to the FHFA study.[2] Here is a summary of our findings:
The Brookings and Freddie Mac studies are not based on rigorous data analysis. Most importantly, they conflate race with socio-economic status (SES), i.e. income, buying power, marriage rates, credit scores, etc. Race-based gaps found in the Brookings and Freddie Mac studies either entirely or substantially disappear when adjusting for differences in SES. Furthermore, our analyses show that similar gaps are present in majority White or White-only tracts across different SES levels, raising serious questions regarding a race-based explanation.[3] We also addressed a rebuttal from the Brookings authors to our critique. We found that Perry and Rothwell’s (2021) rebuttal to our critique supported our claim of omitted variable bias, failed to rebuke our methodology, and never addressed our case studies. We also presented solutions based on our findings. The Freddie Mac study took pains to state that its research was both “exploratory” and “preliminary”. Yet PAVE accepted Freddie Mac’s findings at face-value, even though research by Fannie Mae provides a likely, non-race based explanation for the valuation discrepancy found by Freddie Mac. It is worth noting that Fannie Mae’s explanation castes a favorable light on the appraisal industry.
This conflation by both Brookings and Freddie Mac is of critical importance. While there is agreement regarding the symptoms observed by PAVE–racial and ethnic differences in homeownership rates, financial returns of owning a home, and median wealth–ascertaining the causes and workable solutions requires a competition of ideas.[4] PAVE excluded research that was inconvenient or inconsistent with the desired narrative and conclusion.[5]
The FHFA blog post, which we have not addressed until now, stated that in their “review of appraisals, we have observed references to race and ethnicity in the ‘Neighborhood Description’ and other free-form text fields in the appraisal form.” FHFA concluded that the use of such references is evidence of bias as the “racial and ethnic composition of the neighborhood should never be a factor that influences the value of a family’s home” and released 16 specific examples.
While we all can agree with FHFA’s statement that “racial and ethnic composition of the neighborhood should never be a factor that influences the value of a family’s home”, the blog post failed to provide any specifics as to the frequency of such occurrences. It only stated:
From millions of appraisals submitted annually, a keyword search resulted in thousands of potential race-related flags. Individual review finds many instances of keywords to be false positives, but the following are [16] examples of references when the appraiser has clearly included race or other protected class references in the appraisal.
Without more information, one is unable to discern whether this is evidence of a few bad apples or systemic behavior. This is made all the more problematic given that there is other evidence showing no systemic appraisal bias. Unfortunately, PAVE ignored that body of research, to wit:
AEI Housing Center (2021) found that racial bias by appraisers on refinance loans is uncommon and not systemic. To evaluate the existence of bias, the AEI Housing Center assembled a unique dataset with over 240,000 loans for which we knew the race of the borrowers.
Ambrose et al. (2021) concluded that “contrary to media allegations, our statistical analysis found that racial bias by appraisers on refinance loans is uncommon and not systemic.”[6]
Fannie Mae (2022) concluded that for refinance applications “Black borrowers refinancing their home on average received a slightly lower appraisal value relative to automated valuation models” and that “the frequency of ‘undervaluation’ did not have a notable racial pattern.”[7]Interestingly, Fannie Mae (2022) also rebuked the methodological approach in Freddie Mac’s research note that was cited by PAVE as one of the three main studies.[8]
Our conclusion is that PAVE has misdiagnosed the problem.[9] PAVE proposed 21 agency actions. It is highly questionable that these will address racial and ethnic differences in homeownership rate, financial returns of owning a home, or median wealth. In some cases, they may make these differences worse or take the pressure off in finding effective solutions. It also must be noted that HUD, and its predecessors have played a major role in perpetuating segregation and racial wealth disparities.[10] This alone should give pause to any objective reader of the PAVE report.
Rather than PAVE’s finding of “inequities within current home lending and appraisal processes, which research shows disproportionately impact people in communities of color” the real culprit are inequities in SES, which PAVE acknowledges when it states that “[m]uch of the gap in rates of homeownership can be traced to socio-economic factors that differ on average between Black and white homeowners.” While lower SES certainly reflects a legacy of past racism and lingering racial bias, which leaves Blacks at a large income and wealth disadvantage relative to most Whites, PAVE should have addressed this in its policy recommendations. Thus, the PAVE Action Plan, by misdiagnosing the causes of the racial gap, will likely lead to unintended consequences as the Action Plan does not address the root problem.
We agree with PAVE that we ought to support opportunities for income and wealth growth among lower-income households. However, we should address the root cause for lower SES, and not unsubstantiated claims of systemic bias and racism in the housing finance sector.
Based on an objective diagnosis of symptoms and causes using rigorous data analysis, we propose the following solutions:
The housing policy solutions are:
Building generational wealth through sustainable homeownership for low SES households by reducing leverage for aspiring low-income home buyers.
Increasing supply and reducing income stratification through Light Touch Density.
Promoting Walkable Oriented Development in existing neighborhoods with a mix of residential and commercial properties.
Other policy solutions, which might be explored, are:[11]
Encouraging two parents in households with children (single-parent households have been found to be a significant SES factor by a wide ranch of academic researchers).
Enacting occupational licensing reforms and allowing small businesses to be run out of one’s home (this has been found to be a significant barrier to low SES households).
More economical childcare by rolling back burdensome government regulations (childcare costs are a significant barrier to gainful employment by low SES households).
Real school choice for access to quality elementary and secondary education (racial and ethnic minorities would benefit greatly from real school choice).
Improving access to technical and apprenticeship training (this would open up access by low SES households to these well-paying jobs).
Encouraging state and local governments to address public investment disparities relating to minority and lower income neighborhoods.
Recognizing the importance of SES factors is key to fashioning appropriate public and private responses. A misdiagnosis that focuses on other factors will not address the root problem and could potentially lead to unintended consequences. We must be mindful that many public policies aimed at addressing racial discrimination have had unintended consequences that have done substantial harm to low-income households generally, and minority households in particular.

Footnotes:
[1] Interagency Task Force on Property Appraisal and Valuation Equity (PAVE), Action Plan to Advance Property Appraisal and Valuation Equity: Closing the Racial Wealth Gap by Addressing Mis-valuations for Families and Communities of Color, March 24, 2022, pp. 2-3.
[2] Despite the AEI Housing Center having undertaken a significant body of research on the topic of racial bias in housing finance over a course of years and notwithstanding efforts to engage with PAVE and some of its members, we were unable to engage with PAVE and our work was not mentioned in the report. Yet, PAVE stated that “Over the past 180 days, the Task Force has undertaken a collaborative and comprehensive approach toward identifying actions to address appraisal bias. This approach involved extensive consultation with subject matter experts and leaders across industry, academia, trade and civil rights groups, and government.”
[3] The same critique to the Brookings paper also applies to research by Howell and Korver-Glenn (2021) and a recent Redfin post on the same topic.
[4] The University of Wisconsin Board of Regents stated this concept best over 125 years ago: “Whatever may be the limitations which trammel inquiry elsewhere, we believe that the great state University of Wisconsin should ever encourage that continual and fearless sifting and winnowing by which alone the truth can be found.” https://news.wisc.edu/sifting-and-winnowing-turns-125/
[5] This goes back to when President Biden in his January 26, 2021 “Memorandum on Redressing Our Nation’s and the Federal Government’s History of Discriminatory Housing Practices and Policies” for the Secretary of HUD cited as fact “a persistent undervaluation of properties owned by families of color.” Thus, PAVE would need to conform to the President’s stated narrative, notwithstanding strong evidence to the contrary. https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/26/memorandum-on-redressing-our-nations-and-the-federal-governments-history-of-discriminatory-housing-practices-and-policies/
[6] Ambrose, Brent W., James Conklin, N. Edward Coulson, Moussa Diop, and Luis A. Lopez. “Does Appraiser and Borrower Race Affect Valuation?” Available at SSRN 3951587 (2021).
[7] Williamson, Jake and Mark Palim. “Appraising the Appraisal: A closer look at divergent appraisal values for Black and white borrowers refinancing their home.” (2022).
[8] In particular, Fannie Mae wrote that “We chose to study refinance applications, as opposed to home purchase applications, because the appraiser in a refinance transaction typically interacts directly with the homeowner (i.e., the borrower), establishing a pathway for potential bias to influence the appraisal results. The race or ethnicity of the borrower is often disclosed in the loan data, making it possible to directly observe any correlation with value. On the other hand, in a purchase transaction, the appraiser typically does not interact with the buyer (i.e., the borrower) of the property but rather with the seller or the seller’s agent. The availability of racial or ethnic data of sellers and real estate agents is limited, thereby making an analysis of valuation differences by different demographics for purchase transactions limited or incomplete relative to the analysis detailed below using refinance transactions.” (p.3)
[9] At times, PAVE tried to have it both ways. On the topic of undervaluation, which is the main focus in the Freddie Mac analysis because of the negative impact on minority home buyers, the PAVE report stated that a lower appraisal can be beneficial to the buyer but hurtful to the seller as “it limits the seller’s realized home equity gains and therefore impacts the seller’s wealth.” (p.15)
[10] As noted by PAVE throughout the 20th century, the “federal…government systematically implemented discriminatory policies that led to housing segregation.” Not mentioned by PAVE was the U.S. Commerce Department’s role in implementing a zoning regime designed to keep Black and ethnic-minorities out of single-family detached neighborhoods (see Chapter 1, AEI Light Touch Density E-Book), the 1949 Housing Act which resulted in the high-rise public housing and urban renewal programs, both of which worked to the great detriment of Black households and neighborhoods, the 1967 Presidential Task Force on Housing and Urban Development (headed by HUD Secretary Weaver), which proposed a 10-year housing program to eliminate all substandard housing in the U.S. (source: Lyndon Johnson Library), that was enacted in the 1968 Housing and Urban Development Act, the consequences of which led to HUD and FHA destroying many American cities, especially Black neighborhoods (Cities Destroyed for Cash: The FHA Scandal at HUD), the Tax Reform Act of 1986, which created the Low Income Housing Tax Credit, which has perpetuated racial segregation (Chicago tax credit program mostly produces affordable housing in poor black areas, March 15, 2021), the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, which granted HUD the authority to set affordable housing mandates for Fannie Mae and Freddie Mac, and HUD’s 1995 National Homeownership Strategy: Partners in the American Dream, which led to over 10 million foreclosures and did much to create the wealth disparities Blacks now face. All of these failures may be traced to HUD, or its predecessor agencies responsible for federal housing policy.
[11] Many thanks to our AEI colleagues Naomi Schaefer Riley and Angela Rachidi for many of these ideas. Please see their thoughtful analysis: https://reason.com/2021/02/24/fix-family-poverty-with-free-markets-for-once/

FANNIE MAE STUDY CONCLUDES NO RACIAL BIAS IN APPRAISALS

MARCH 12, 2002 – Now, two studies of millions of appraisals by the American Enterprise Institute (AEI) and Fannie Mae have concluded that there is no racial bias in real estate appraisals.
For those involved in the industry, this comes as no surprise. It is essentially impossible for real estate appraisers to be biased. Probably 95% of the time the appraiser knows nothing about the physical characteristics of the borrower. Nearly 100% of the time the appraisal reviewers know nothing about the borrower. And ALL appraisals must be approved by a reviewer.
Also, the market sets prices and all appraisers do is analyze recent comparable sales and arrive at a value for the subject. Which, in purchase situations, is equal to or higher than the sales price 95%+ of the time.
Racist organizations like the Brookings Institution and others that are falsely complaining about appraisal bias need to ‘follow the science’ as they like to say. Scientific studies 100% conclusively say there is no appraisal bias.
Maxine Waters and President Biden owe the appraisal industry an apology. And so does the Appraisal Institute for not supporting its own members.
The real estate appraisal industry is the gold standard for an unbiased profession. We have been the independent referee for 80+ years.
Lastly, we all know about the Fair Housing Act, redlining, discrimination being illegal, et al. To say we need to be educated about such is ridiculous. If you have lived in America since the 1970’s, you know all about fair housing laws and what is and is not discrimination.
The true racists are those that accuse everyone else of being racist. These people need to be exposed and told where to stick their unfounded claims. They should be sued for slander and defamation, also.
Hey, Appraisal institute, get a backbone and stand up for your members! There is no legislation that can change 4,000+ years of economic theory. The appraisal industry does not need to make any changes. It is already fully diverse and inclusive of people of all socio-economic classes (I grew up in mobile homes and am Jewish….I have the low-priced housing and minority characteristics covered!). Remember, skin-color and the only two genders have nothing to do with diversity and inclusivity.
Shalom,
The Mann

STUDY CONCLUDES THAT APPRAISERS ARE NOT BIASED

JANUARY 8, 2021 – The American Enterprise Institute has published a study about the possibility that appraisers have intentional or even unintentional racial bias.  Their conclusion is:

We conclude allegation that knowing the race of the applicant results in racial bias by appraisers on refinance loans is uncommon and not systemic. This same analysis supports the conclusion that unintentional bias based on race is also uncommon and not systemic.

You can find the article and link to the report at:

How Common is Appraiser Racial Bias?

It would be nice if the racially biased Brookings Institute would issue an apology to the appraisal industry.  But, racists have an agenda and do not apologize.  Thankfully, there is access to actual data and entities like the AEI can analyze and report the facts.

Basically, it is simply impossible for the appraisal industry to be racial or gender biased.  Probably 99%+ of the time appraisers know nothing about the physical characteristics about the borrower in residential transactions.  Also, every appraisal report is reviewed and I would say near 100% of the time the reviewers know nothing about the borrower at all.

AVMs are often used in the residential arena and they know nothing about the borrower nor the subject’s neighborhood, et al.  To them, data is data.  Finding the best comparables is based on analyzing numbers.  That simple.  And for the most part, it is the same for human appraisers.

There is one group of people in real estate that can have significant bias.  I won’t name them.  You can probably figure it out.  There might actually be a few groups involved in this arena that can have bias.  That is not to say it is widespread and rampant.

For those who want to keep the ‘conversation’ going, provide the AEI report.  You will see how fast the other side wants to stop the conversation and change the subject:)

Great work AEI.  I hope they will now do a study about the 20 million whites that live in poverty and see what it is about their neighborhoods that is common and how action can be taken to improve their standard of living….and housing.  At the same time, I am sure those solutions can help everyone that lives in poverty.  Remember, poverty is colorblind.

The Mann