Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com.

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April 14, 2010 – Lower Home Appraisals Will Help Some, Hurt Others

The impact of lower home appraisals! The FDIC wants to change the rules for Deposit Insurance
Fund assessments. Intel scores better than expected earnings for a third consecutive quarter.
The Dow continues to grind higher on strong MOJO on its daily chart.
My son and I are homeowners who bought a home a year ago and have no intention to sell. We
welcome a lower home appraisal, as that reduces the property taxes we will pay in 2011. The State of
Florida also has a Homestead Act, where a home’s tax base is $50,000 below the home appraisal. In
2010 we were not eligible for this benefit. In the 2011 tax year the appraised value of our home is down
20% from a year ago, and our tax base is down 40% after the Homestead Act benefit. Tax rates may be
higher, but it’s reasonable to assume that our property taxes will be lower in 2011 from 2010.
When we bought the home we estimated that we purchased down 40% from the housing peak of mid-
2006. We knew that there would be risk of lower prices, but a deal is a deal, and we have a 4.5% 30-
Year fixed rate mortgage.
Those who get hurt by lower appraisals are the sellers, who become underwater or even more than
25% underwater, which appears to be the threshold for mortgage mitigation programs. The lower the
appraised value, the less likely a servicer will be willing to offer a Short Sale and the more likely that the
homeowner will default and then foreclose. This could propagate into even lower home prices
exacerbating the problems in the housing market.
This will also hurt the homebuilders because new homes may become unprofitably to built and sold
given higher costs of building materials. In a market where new homes are being sold, the same model
can be appraised at a lower price do to defaults up the block from the builder’s site.
I do not have a suggested way to avoid this problem, but it will likely lead to 3.5 to 4.0 million
foreclosures this year, up from 2.8 million in 2009. Also keep in mind that the Case Shiller Housing
Market Index is 50% higher than in 2000, so home prices have room for another leg down.
The FDIC wants to have a three-tiered Deposit Insurance Fund - Under a proposal being
considered by the FDIC, small banks with less than $10 billion in assets would pay the same fee
structure, or have reduced fees. Deposit insurance fees would rise for banks with more than $10 billion
in assets. Finally banks considered “highly complex institutions” with $50 billion or more, and a holding
company with $500 billion would have yet a higher fee schedule. I do not know how this will effect the
Deposit Insurance Fund will be affected in 2010 through 2012, as these fees have been pre-paid.
The FDIC thinks that banking regulators should be allowed to apply these new standards based upon
their judgment of a bank’s risk profile. How do they dream up these ridiculous notions, when our
banking regulators ignored guidelines for C&D and CRE loans set at the end of 2006?
Will Intel be the earnings tell for the second quarter? Subscribers to the ValuEngine Morning
Briefing know that Intel was my Stock of the Day on Tuesday. Here’s how I framed the profile:
Intel Inc (INTC) – has been rated a BUY according to ValuEngine, with fair value at $25.00, which
makes the stock 9.9% under. Intel is expected to earn 38 cents per share after the close today. The
stock has been in the ValuTrader model portfolio since February 8th. Intel Corporation develops
integrated digital technology products, primarily integrated circuits, for industries, such as computing
and communications. The company also develops platforms, which define as integrated suites of digital
computing technologies that are designed and configured to work together to provide an optimized user
computing solution.
Analysis – The daily chart for Intel shows declining MOJO with the stock above its 21-day, 50-day and
200-day simple moving averages at $22.24, $21.14 and $19.93. My annual value level is $16.47 with a
monthly pivot at $21.44 and weekly risky level at $22.93. Assuming the stock holds after hours
gains Wednesday morning, profits will be booked at Wednesday’s open. A GTC order to sell at
$22.93 will be executed at the open. At my monthly risky level at $23.47 the gain will be 21% since the
stock entered the ValuTrader model portfolio on February 8th.

Chart Courtesy of Thomson / Reuters

Dow 11,000, but major resistances loom. The strength of earnings from Intel should have the Dow
challenging today’s resistance at 11,085, but remember that “Wall of Resistance”; monthly resistance at
11,228, annual resistance at 11,235, weekly resistance at 11,330, and semiannual resistance at 11,442.
 Chart Courtesy of Thomson / Reuters

That’s today’s Four in Four. Have a great day.

Richard Suttmeier
Chief Market Strategist
www.ValuEngine.com
(800) 381-5576
As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I
have daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters as
well as my most up-to-date analysis of world markets. My newest products include a weekly ETF newsletter as well as the
ValuTrader Model Portfolio newsletter. I hope that you will go to www.ValuEngine.com and review some of the sample
issues of my research.

“I Hold No Positions in the Stocks I Cover.”