Dawn Rivera

Are Tighter Appraisals Hurting Home Sales?

June 26 2009

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Make sure your home is in top condition so you have a better chance to get a good appraisal.........

Less than a week after putting his newly renovated house on the market, "Rick" accepted a full-price offer of $242,900 on the 1940 bungalow. But the appraisal on the 1,780-square-foot home came in at just $206,000. The buyer couldn't come up with enough cash to make up the difference and Rick wasn't willing to drop the price, so the deal fell through.

On top of sluggish home sales, are appraisals becoming the newest threat to the local housing market?

Real estate experts say sales are collapsing as appraisers are being more conservative and valuing homes for less than what buyers have agreed to pay. Owners can't refinance because appraisers say their homes are worth less than they had counted on.

In the example of Rick's home, the low appraisal affected the would-be buyer's ability to get a mortgage for the contracted price. Their lender naturally, wouldn't approve that. Many Real estate brokers have seen a number of sales fall through because of low appraisals, and that has the potential to hurt property values, too.

Part of what's at issue, a new rule that went into effect May 1 prohibiting loan officers, mortgage brokers and real estate agents from selecting appraisers.

The rule falls under the new Home Valuation Code of Conduct, the result of an agreement between Freddie Mac, Fannie Mae, the Federal Housing Finance Agency and the New York state attorney general to enhance the independence and accuracy of the appraisal process. It applies to lenders that sell single-family mortgage loans to the government-sponsored enterprises.

The rule was meant to prevent inflated appraisals like those that proliferated during the housing boom.

Unfamiliar with the area

One of the unintended consequences of this system, however, is the chance that a management company, will hire an appraiser who isn't familiar with the neighborhood where the house is being evaluated. When you have appraisers coming from different parts of town and not knowing areas, they aren't doing justice to the people that are trying to refinance or sell, It really skews the whole appraisal process.

Happy thursday! here is some more info on the existing home sales. Some good some bad news.

Sales of existing homes showed another gain in May, benefiting from favorable affordability conditions

and a first-time buyer tax credit, according to the National Association of Realtors®. May's increase

was the first back-to-back monthly gain since September 2005.

Existing-home sales-including single-family, townhomes, condominiums and co-ops-rose 2.4 percent to a

seasonally adjusted annual rate of 4.77 million units in May from a downwardly revised level of 4.66

million units in April, but remained 3.6 percent below the 4.95 million-unit pace in May 2008.

Historically low mortgage interest rates clearly drew buyers into the market, and housing remains very

affordable even with a recent uptick in rates. First-time buyers also are being drawn off the

sidelines by the $8,000 tax credit, which is helping to absorb inventory. However, the increase in

sales is less than expected because poor appraisals are stalling transactions. Pending home sales

indicated much stronger activity, but some contracts are falling through from faulty valuations that

keep buyers from getting a loan.

Total housing inventory at the end of May fell 3.5% to 3.80 million existing homes available for sale,

which represents a 9.6-month supply2 at the current sales pace, down from a 10.1-month supply in

April.

The appraisal problem is serious. Lenders are using appraisers who may not be familiar with a

neighborhood, or who compare traditional homes with distressed and discounted sales. In the past

month, stories of appraisal problems have been snowballing from across the country with many contracts

falling through at the last moment. There is danger of a delayed housing market recovery and a further

rise in foreclosures if the appraisal problems are not quickly corrected.

A NAR practitioner survey in May showed first-time buyers accounted for 29% of transactions, and that

the number of buyers looking at homes is nearly 10 percentage points higher than a year ago.

The NATIONAL MEDIAN existing-home price for all housing types was $173,000 in May, down 16.8% from a

year earlier. Distressed properties, which declined to 33% of all sales in May from 45% in April,

continue to downwardly distort the median price because they generally sell at a discount relative to

traditional homes.

First-time buyers are concentrated in the lower price ranges, which include most of the distressed

sales.

Single-family home sales rose 1.9% to a seasonally adjusted annual rate of 4.25 million in May from a

pace of 4.17 million in April, but are 3.0% below the 4.38 million-unit level in May 2008. The median

existing single-family home price was $172,900 in May, down 16.1% from a year ago.

Existing condominium and co-op sales increased 6.1% to a seasonally adjusted annual rate of 520,000

units in May from 490,000 in April, but are 8.9% below the 571,000-unit level in May 2008. The median

existing condo price4 was $173,800 in May, down 21.9% from a year earlier.

Existing-home sales in the Midwest jumped 9.0% in May to a pace of 1.09 million but are 4.4% below May

2008. The median price in the Midwest was $145,800, which is 10.4% lower than a year ago.

In the South, existing-home sales were unchanged at an annual pace of 1.74 million in May but are 8.9%

below a year ago. The median price in the South was $157,400, down 9.9% from May 2008.

Existing-home sales in the West slipped 0.9% to an annual rate of 1.14 million in May, but are 11.8%

higher than May 2008. The median price in the West was $197,700, down 30.6% from a year ago.

Hi loyal readers, here is some new market info for you. Record low mortgage interest rates boosted pending home sales for the third consecutive month, with some benefit now from the first-time buyer tax credit, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in April, rose 6.7% to 90.3 from a reading of 84.6 in March, and is 3.2% above April 2008 when it was 87.5.

The Pending Home Sales Index in the Northeast shot up 32.6% to 78.9 in April and is 0.8% above a year ago. In the Midwest the index rose 9.8% to 90.4 and is 11.1% above April 2008. The index in the South slipped 0.2% to 93.0 in April but is 3.5% higher than a year ago. In the West the index rose 1.8% to 94.8 but is 2.9% below April 2008.

There are numerous buyer assistance programs around the country. Some states are offering bridge loans that allow first-time buyers to use the tax credit for downpayment and closing costs, but there are many other local government and nonprofit programs available to buyers, depending on location.

Just last week, HUD announced that qualifying buyers can use the tax credit for closing costs on FHA loans, to buy down the interest rate or make a larger downpayment. Buyers who are wondering about their options should contact a Realtor®, who can advise consumers on the housing assistance programs and resources available in a given area.

NAR's (national asso. of realtors) Housing Affordability Index is in record territory. The affordability index rose to 174.8 in April from an upwardly revised 171.9 in March, and was the second highest monthly reading on record after peaking at 176.9 in January of this year. The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income; tracking began in 1970.

A median-income family, earning $60,900, could afford a home costing $296,800 in April with a 20% downpayment, assuming 25% of gross income is devoted to mortgage principal and interest. Affordability conditions for first-time buyers with the same income and small downpayments are roughly 80% of that amount. The affordable price was well above the median existing single-family home price in April, which was $169,800.

The relationship between contracts on pending home sales and closings on existing-home sales is taking longer than in the past for several reasons, Mortgage processing time has increased, it is taking many months to close on those homes requiring short sales with lender approval, and some sales are falling through at the last moment.

The total number of existing-home sales is expected to improve but with dramatic local market variation in the timing of recovery. The market has already bottomed in some areas, but this is an unusual housing cycle with some areas improving rapidly while others languish or decline.

For more information, visit http://www.realtor.org.

Hi all, I just heard June is National Homeownership Month! and, like many other consumer advocates, I urge consumers to get informed as they prepare to buy a home. Today, there are a growing number of obstacles for home buyers, including a higher credit score standard and more restrictions on credit. Despite current challenges in the secondary mortgage market, home loans are available to credit-worthy buyers and banks stand ready to assist prospective home buyers.

Whether you live in California, Oregon, New Jersey, or anywhere else in between, it's crucial that you have a thorough understanding of the changing market when shopping for a mortgage. Here are seven tips to help you do exactly that:

1. Learn about first-time home buyer programs. Consider taking a first-time home buyers course or visit with your local banker to find out about programs available to you, such as the new federal $8,000 first-time home buyer credit for 2009 home purchases.

2. Get pre-approved. Know the difference between "pre-qualified" and "pre-approved." Getting pre-qualified is a casual process where the lender tells you how much you should be able to borrow based on how much money you make, how much debt you have and how much you have to put down on a house. Pre-approval occurs only after you actually apply for the loan and the lender gives you in writing the amount you can borrow. A buyer who is pre-approved is more attractive to sellers and their agents than one who is only pre-qualified. Once you find a mortgage that is best for you, get pre-approved before you start making offers on a home.

3. Be honest with the lender and yourself. You don't want to borrow more than you can afford. Your bank can provide a calculator to determine if you can afford to borrow and if so, how much. The American Bankers Association has several home financing calculators available at www.aba.com/aba/static/calculators.htm.

4. Look at the basics of the loan. Don't get distracted by all the bells and whistles. Choose the type of loan that makes the most sense for you.

5. Know your credit situation. Obtain a copy of your credit report and FICO score or VantageScore at least six months before you apply for a mortgage. This should give you enough time to challenge and remove any errors on your credit report and take care of anything that's hurting your credit score. To obtain a free copy of your credit report, visit www.annualcreditreport.com.

6. Consider all the costs. A lender will review costs like fees, closing costs, points, homeowner insurance, and taxes. But consumers should also consider repairs and maintenance costs. As a homeowner, you are responsible for those additional costs - there won't be a landlord to call.

7. Organize your finances before you go to the bank. While each bank may require different documentation, at a minimum you will need:

- Pay stubs.
- Tax returns.
- Financial statements (one that is less than 60 days old).
- Copies of additional monthly payments such as car loans, credit cards, student loans, etc.
- Any additional information (such as proof of additional income) that you think will help your banker to positively evaluate your credit request.

If your buying a home, you'll probably be signing up for homeowner's insurance as well. In fact, many lenders will require that you purchase a homeowner's policy before your mortgage can be approved.

Most homeowner's insurance policiesnincludenboth property and liability coverage. The property section covers damage to your possessions, home, garage or other structures on your property. It also covers offsite housing if you must move out of your house while repairs are being made. Personal property coverage will usually pay 50% of replacement value, although there may be a limit on such items as jewelry.

Most lenders require that you have Insurance (which is typically based on market value) before you close. Because the market value is a broad figure that doesn't take specific features into account, chances are it's much less than what your actual costs would be. Market value is based on such factors as the age and condition of your home, and the value of comparable homes in your area.

If you have any questions about the real estate industry, call me. As your real estate professional, I would be happy to help you with all of your real estate needs.