Friday, February 1, 2013

Everything's Coming up Roses?

With all of the mainstream media reports about the surging economy, I am reminded of Bette Midler in the TV version of "Gypsy" belting out "Everything's Coming up Roses."  This week saw the stock market surge over 14,000--levels it has not seen since 2007.  We also saw reports that housing is recovering nationwide and that housing prices have increased 23% in Phoenix, Arizona.  Although we do have reports that the unemployment numbers did tick up a point, the overall message is that life is good and getting better.

Unfortunately, that message does not mesh with reality for a lot of us.  For many Americans--the top 1% that the supporters of the current administration seem to dislike so intensely--life actually is good.  The policies of the last four years have benefited Wall Street enormously.  The historic low interest rates fostered by quantitative easing are good for stock prices, and budget deals like the one we saw with the "Fiscal Cliff" provide investors with confidence.  As long as interest rates and the price of oil remain low and the government continues to spend money, Wall Street is happy.  So are the Americans who are invested in the stock market, the investment advisers who assist them, and the publicly traded firms.  My wealthier clients are doing just fine. For example, one family of attorneys for whom I do a lot of transactions are taking advantage of the low real estate prices to pad their portfolio of commercial and residential real estate.  They have plenty of disposable income since they derive their funds from a hugely profitable social security disability practice.  For people like these, this is a good time. 

For a lot of Americans in the middle class tier of the economic scale, however, these are not such good times.  We are seeing continued high unemployment, hiring freezes, and a contracting job market.  For those of us who do not have investments, we are supposed to take comfort in the fact that housing prices are improving and so the most important asset that most of us own is appreciating in value.  But is it really?

In the areas of the country hardest hit by the housing crash, prices are rising.  The appreciation was rapid, the crash was horrific, and now there is some recovery.  But in other parts of the country, such as Texas, where property values did not ride the roller coaster to such great heights, we have seen more steady depreciation and no recovery.

Consider this--in 2012, I saw only two loans where the properties actually appraised as or better than expected.  The first one was a custom remodel for a doctor I had financed in 2008.  He had doubled his property's square footage, and his appraisal in May of 2012 came in considerably better than expected.  The other property which appraised was a Fannie Mae owned foreclosure being purchased an investment property. Fannie Mae was selling the property for $170,000--the house appraised for $214,000.  The borrower did not close on the loan, but if he had, the lower sales price would have effectively reduced the price of the house to $170,000, thereby lowering the values of the other properties in the same neighborhood.

All of the other properties that I financed last year came in below the expected appraised value--some significantly so.  In January I closed a loan for a couple who had custom built their home several years ago. They spent $650,000 building the house and assumed that this was the value--especially since the house is in pristine condition, located in a great neighborhood and has desirable amenities including a three car garage.  They were disappointed when the house appraised for $599,000.  However, the underwriter did not accept the appraisal and questioned the appraiser's statement that one of the comparables in the immediate neighborhood sold for $610,000 when the information the underwriter had on file indicated that this property had in fact sold for $510,000.  The underwriter also rejected one of the comparable sales on the basis that it was just over a year old and therefore unacceptable.  After a month of working on this, the appraiser returned a report stating that the first comp was reported in error--the sales price was $510,000, and the new comps have all sold for substantially less.  After making the adjustments, this beautiful custom built home appraised for a current value of $510,000.  The homeowner was able to close but they were not able to pay off their second lien because we had to reduce the loan amount to get them to 80%.

This month I am working with another long-time borrower of mine. This man wants to take advantage of the low interest rates by refinancing his home to lower the payment.  He purchased his house, new from the builder, in 2008 for a price of $200,000.  At the time, the property appraised for $250,000.  In 2009, he refinanced the house from his original 6.5% interest rate to a new rate of 4.875%.  At that time the house appraised for $205,000.  This year, when we appraised the house, the appraisal came in for $200,000.  My borrower was extremely upset, because not only has the property actually lost $5000.00 in value since 2009, which was a very bad year for property values, but he is not able to roll in his closing costs without MI.  (The property did qualify for a DU refi plus, and we will be closing him on that program.)  He has also questioned whether he should even go to the trouble to refinance his home to a 3.49% interest rate, since he has just learned that there are a lot of changes coming to the company where he has worked for the past 20 years, and now, even though he has held a key position for two decades and by his own admission, "works cheap", he is afraid that at some point he will be told that there is no longer a need for his services.  Although he is a person with specialized abilities whom I am certain will not have trouble finding more employment--and he does in fact have other jobs now, should his current employment end in the next year--he is anxious and nervous about his future and about even the remote possibility of having to look for work. 

Unfortunately, his story is much more representative of the condition in which most of us currently find ourselves.  In this brave new era, years of hard work and experience don't really seem to mean much at all.  Consumer confidence is down partially because many of us have no assurance of a paycheck or a job or any security.  We hear a lot about how the top 1% of the country needs to pay their share, but in reality we see the wealthiest class of Americans becoming increasingly wealthier while middle class Americans have less confidence, less assurance of finding work, and less to look forward to.  That's a story that the media is not reporting much, and it is not rosy at all.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner, about an out of control, environmentally-driven federal government implementing Agenda 21, is available on Kindle and in paperback. For more information, visit her website at

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