Last week saw critical changes to appraisals, an increase in mortgage purchase applications, the interest rate trend continuing, corrections in last week’s HAMP report, and the new emerging trend; “renter nation”. Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free Appraisal Rules Set to Change Housing Market There were 2 important changes in the appraisal world recently; Fannie Mae is stopping lenders from cutting appraised values starting September 1st and the new Dodd-Frank Act is eliminating the HVCC (Home Value Code of Conduct) and setting new appraisal standards. The Fannie Mae change is going specifically prevent lenders from doing any cutting of appraised values which had been rampant (usually when they rule a market “declining”). Unfortunately most markets are “declining”. The result of the Frank-Dodd Act’s elimination of the HVCC is still in question. Many think the nightmare of dealing with Appraisal Management Companies (AMC’s) will be over. The Act seeks to give appraisers a fair shake by allowing them to communicate with lenders again to ensure appraisal quality standards. This will likely ensure that appraisers are compensated appropriately for their work. The HVCC was originally slated to decrease mortgage fraud but a new survey showed that mortgage fraud actually went up during the short life of the HVCC. We’ll see what the new standards hold before any champagne is toasted. Mortgage Purchase Applications Up The Mortgage Bankers Association reported for the second week in a row, mortgage purchase applications were up. The index showed a 2% increase from the previous week which was the first increase in nearly 8 weeks. The refinance index decreased slightly as many of those who’ve been able to refinance have already done so. This is positive news for the housing market as record low interest rates are driving some of the purchase activity while pent up demand drives the rest. Interesting side note; someone I know here in New York has been renting for 15 years and made the move to purchase now. His reasons? “ The prices and interest rates combined to make the decision to buy a no-brainer”. Let’s hope this trend continues. Interest Rates Continue Record Slide Freddie Mac’s most recent interest rate survey showed the 30-year mortgage rate slide to the lowest ever (again) at 4.54%, down from 4.56% the previous week. This is the 6th week that rates have trended down in a row, offering buyers an opportunity to lock-in low priced properties at never seen before interest rates. With rates and property prices where they are today, a new consumer is being created and possibly one that will help us lead this country out of the current recession. Newly formed households are purchasing homes to occupy with mortgages that are very strict, low interest rates, and low property prices. This could signal a very strong recovery when it does take place as these individuals go up the income ladder and have more disposable income than their predecessors. Renter Nation According to the Census Bureau, home ownership has dropped to its lowest point since 1999 erasing a decade of gains in the pursuit of the American dream. The rate of home ownership declined to 66.9% from 1999’s level of just over 69%. Vacancy rates in rentals mirror where they did a year ago but are improved from 3rd quarter 2009 (the lowest point of the housing crisis). The financial crisis may have truly defined a new era in home ownership trends for decades. It apears things are headed towards a renter nation which is ultimately a benefit for investors. Not every American is cut out for home ownership and I’m sure that many landlords reading this would concur. How long will the decline in home ownership last? I’m projecting until all the stressed loans pass through the system, or roughly through 2014. HAMP numbers incorrect My article last week reported (now incorrectly) that Housing Affordable Modification Protection Act (HAMP), was having success in the result of loan modifications. The reported success by the Obama Administration showed fewer than 3% of homeowners receiving permanent modifications re-defaulting. However, the administration has now retracted this report and says a new report will be out shortly showing the corrected numbers. Also of concern, it has surfaced that the median debt-to-income ratios of modified loans is 63.7%. The numbers are certain to be worse than the previous report and will ultimately result in less confidence in the administration’s ability to stymie foreclosures. I’m wondering if it would be better to just take the big foreclosure hit now and move forward with rebuilding the housing market. Until the toxic loans are truly off the books, and unemployment is reversed, we won’t see the housing market make any significant gains (on a national level). Hyper-Local is Better than Local. With most of the news being focused on a national struggle in the housing market, investors need to look local. And even beyond local. I have investors frequently ask me they’re hearing good things about my local market, Memphis. I have to caution them because real estate is hyper-local. Parts of my market have absurd crime, unemployment, and foreclosure rates which continue to drive down prices. Other areas have low unemployment, good schools, and small boomlets where homes rent fast and the buying market is competitive. Keep this in mind when looking at the data surrounding the housing market. Drill down to what matters to your strategy and know that in this down market there are tremendous opportunities within real estate.