Housing market boosts consumer spending index
The Deloitte Consumer Spending Index rose to 3.53 in September, from a reading of 3.27 the previous month, based largely on the strength of the housing market. The index, which tracks consumer cash flow as an indicator of future consumer spending, attributed its growth primarily to the nearly 11% increase in home prices, which offset weakness in other areas. Besides home prices, the index is also based on tax burden, initial unemployment claims and real wages.
"The sizable increase in home prices may overstate the strength of the real estate market, though on a positive note, the declines may be over and the market stabilizing," said Carl Steidtmann, Deloitte’s chief economist and author of the monthly index. "The increase may also provide a much-needed boost to consumer confidence as other hurdles lie ahead. Consumer spending growth has slowed, and the primary reason that it is flat but not declining is that households are putting less into their savings. Energy prices remain a drag on household incomes, and rising prices account for the largest month-to-month drop in real wages since September 2005."
Highlights of the index include:
Tax burden: The tax burden rose slightly in the most recent month to 11.05%. A rising tax burden is often a sign of healthy income growth.
Initial unemployment claims: Jobless claims moved higher this month to 371,000 and were 2% higher than this time last year.
Real wages: Rising energy prices sent real wages tumbling to $8.71 — the largest month-to-month drop since September 2005.
Real home prices: In a thin market, housing prices can be volatile as the mix of homes sold becomes more significant. Real home prices soared 10.5% in the latest month, accounting for all of the gain in the index.
Deloitte’s retail and distribution practice provides audit, consulting, risk management, financial advisory and tax services to 80% of the Fortune 500 retailers, according to the company.
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NAR survey breaks down appraisal problems
In a survey by the National Association of Realtors (NAR) in September, 65% of realtors reported they had no contract problems relating to home appraisals over the past three months; 11% said a contract was canceled because an appraised value came in below the price negotiated between the buyer and seller; 9% reported a contract was delayed; and 15% said a contract was renegotiated to a lower sales price as a result of a low valuation.
Lawrence Yun, NAR chief economist, said these findings are notable given that homes in many areas are selling for less than replacement construction costs. “Though the real estate recovery is taking place, the combined issues of stringent mortgage lending requirements and appraisal frictions are hampering otherwise qualified buyers from purchasing a home in a timely fashion, and in some cases are preventing them from buying at all,” he said.
Major problems reported by realtors surveyed included:
• Some appraisers are using foreclosures, short sales and run-down properties as comparable homes, and are not making adjustments for market conditions or the condition of the property.
• Appraised values that do not reflect market conditions such as rising prices, the presence of multi-bidding and low inventory.
• Appraised values are very inconsistent and fluctuate widely.
• Out-of-town appraisers, who are not familiar with the area or local market conditions, are being used.
• Turnaround time by both appraisers and banks is slow, which delays closings.
• Appraisers who don’t make distinctions between distressed and non-distressed properties.
In addition to these problems, some appraisers are required to provide as many as eight to 10 comparable sales, which almost guarantee the use of distressed properties as comps, the NAR said. Previously, three comparable homes were the norm for most appraisals. In many cases there simply aren’t enough apples-to-apples comps to comply with the excessive demands by lenders, so discounted distressed homes are sometimes used in valuating traditional homes in good condition without appropriate adjustments.
Fortunately, the NAR said, the level of distressed sales is trending down — they accounted for about one-third of all sales in 2011, but have averaged roughly a quarter of sales in recent months. By 2013 the NAR expects the distressed market share to decline to about 10% to 15%. As distressed inventory is cleared from the market over the next two years, it should help to correct ongoing problems.
“In the meantime, buyers, sellers and real estate agents need to be aware that there are problems with some real estate appraisals, but also be aware of their rights to communicate with appraisers and lenders about errors or concerns with individual valuations,” said NAR president Moe Veissi, broker-owner of Veissi & Associates in Miami. “In some cases, a second appraisal may be justified.”
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Use of BIM rises dramatically
A study by McGraw-Hill Construction indicated that architects, engineers, contractors and owners are increasingly embracing Building Information Modeling (BIM) in their building projects. Comparing results from its similar research in 2007 and 2009, McGraw-Hill Construction found that the percentage of companies using BIM jumped from 17% in 2007, to 49% in 2009, to 71% in 2012.
BIM uses digital representations of the physical and functional characteristics of a building, as opposed to blueprints or other types of building plans. The resulting models can then be shared between various stakeholders to facilitate decision-making from the earliest conceptual stages through design and construction.
Other findings from the McGraw-Hill Construction study:
• For the first time ever, more contractors (74%) are using BIM than architects (70%);
• All users report increased business benefits from BIM, including better profits, more accurate documentation, less rework, reduced project duration, fewer claims and the ability to offer new services;
• Almost 40% of BIM users are heavily committed to it, doing more than 60% of their work in BIM. This group has surged by 44% since 2009;
• As a sign of its increasing acceptance and maturity, almost half (49%) of BIM users have five or more years of experience using it.
BIM uses digital
BIM uses digital representations of the physical and functional characteristics of a building water sub metering, as opposed to blueprints or other types of building plans. The resulting models can then be shared between various stakeholders to facilitate decision-making from the earliest conceptual stages through design and construction.