Are Dated Appraisals Holding Back the Recovery?
By Andrew King

Some of the most beaten down real estate markets are finally experiencing that long-awaited bounce back from the crash. Cash offers are yielding more sales. Pent-up demand is driving prices higher. But something?s missing.

Brokers in the faster markets such as Nevada, California and Florida?where the soaring prices almost defied gravity leading up to the crash five years ago?are finding it hard to move all these homes even though there are plenty of willing buyers. While the homes are available, the mortgages are not. More specifically, they say, the appraisals are not.

While a would-be buyer could be more than qualified to pay back a $1 million loan for an Arizona McMansion, in many cases, the banks can?t sell them that mortgage?even if the loan officer wants to?because the appraiser won?t sign off on that $1 million valuation.

?It happens a lot in an escalating market,? says Gino Blefari president and CEO of Intero Real Estate Services, a brokerage in the red-hot San Francisco Bay area. ?You have to go back to the appraiser and say, ?look, there were 27 offers on the property. Now that we?re having more sales, we?re better.??

It?s becoming a heated issue across the country as low appraisals continue to squash real estate deals that already have the blessing of would-be buyers, sellers and banks.

At the heart of all the tension are the comparable properties, or ?comps,? that appraisers?who are independent even though they technically represent the bank during a real estate transaction?use to base their valuation. The system is designed to keep everything fair and square for the buyer and seller while limiting the banks? risk. However, conservative appraisals based on the most recent sales?deals made prior to the bounce?can inadvertently stall an otherwise healthy recovery.

To get around these appraisals, more and more buyers are using cash for the purchase and paying more than what they could have gotten with a mortgage. The practice has caught on so drastically?with cash deals accounting for 40 percent of all sales?that the latest national data shows a major reversal in the price of cash deals as they relate to mortgages.

According to RealtyTrac, the average sale price of cash deals has increased almost 10 percent from $331,762 in July 2012 to $362,617 in July 2013, while financed deals have dropped off from $350,136 in July 2012 to $303,265 in July 2013. Historically, cash deals have been relegated to lower-priced offers as they were seen as an incentive for sellers who were willing to take less money in exchange for a quick, stress-free (mortgage-free) closing. Today, all-cash bidding wars are becoming more common.

This influx of cash deals, however, doesn?t always make it into an appraiser?s comp pool, skewing market realities and becoming a point of controversy.

?Cash investors are very aggressive,? says Mark Stark, CEO of Prudential Americana Group. ?This segment began pushing away mom and pop who just wanted a place to live in.?

Stark has seen a huge increase in all-cash deals in Arizona and Nevada. While all-cash deals have usually comprised 7-10 percent of his business, he says that over the last 18 months, they have grown to 21.5 percent. A lot of this, he says, is due to institutional investors who have come into the market to take advantage of the low prices.

Speculation, bidding wars and rising home prices are generally seen as signs of a healthy economy, but Stark thinks that too many borrowers are being left out of the market due to overly conservative appraisals. The problem, he says, is that many appraisers are not taking these cash deals into account when they determine the value of a property ? even though they are perfectly valid comps.

Appraisers will often throw out unrealistically low sale prices, such as those that result from a foreclosure or an arm?s-length transaction, when conducting an appraisal. They also throw out prices that are unrealistically high. But many real estate agents don?t think this should include cash deals from institutional investors.

John Brenan, director of appraisal issues at The Appraisal Foundation, a private nonprofit recognized by the government as the source for appraisal standards and recommendations, says that while the appraisal industry is regulated, there are still a lot of gray areas when it comes to comps.

He says that high comps should be thrown out only if they don?t truly reflect fair market value. An institutional investor should not be disqualified as a comp just because they?re a fund or someone who is looking to lease or flip the property. Brenan says an unusually high cash sale would get thrown out if someone paid significantly higher than what others recently paid for surrounding properties without a good reason.

?If someone paid an extra $50,000 on a property because it?s the exact color they wanted,? says Brenan, that would not be a realistic example of the market and shouldn?t be counted as a comparable property in the appraisal.

On the other hand, appraisers shouldn?t be using foreclosures or REO properties as comps either, Brenan says. Still, a block full of short sales can?t just be ignored when gauging the marketplace.

?That (bad) sale in and of itself does not make a market, but it does play a role,? explains Brenan. ?Appraisers are not out to establish value. They?re out to reflect the marketplace.?

Brenan adds that appraisers should be looking at the most recent data available, but that might not necessarily include current events such as a big company expanding its workforce in the neighborhood or an inventory shortage. Part of the tension has to do with the fact that appraisals represent a fixed point in time ? what a house is worth on a particular day. It doesn?t always leave room for the greater economic trend.

?The appraiser is working off historical data,? Blefari says. ?If it?s a cash deal, they should use it as a comp.?

Blefari emphasizes that the market has so much pent-up demand right now that it will drive prices higher through the end of the year and beyond. He says the recovery is completely genuine and appraisals need to reflect that.

There is also a mechanism for appeal if someone wants to dispute an appraisal, and Blefari says he does it quite often.

Some states even have appraisal grievance boards that can serve as a mediator. For more information on appraisals, visit http://www.appraisalfoundation.org/

Andrew King is an award-winning journalist with 15 years of experience with the Gannett newspaper company, appearing in The Journal News (Westchester, NY), Asbury Park Press and USA Today. He also contributes to The Real Deal, TheLadders.com and TechPageOne.com.

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National Association of Realtors – NEWS RELEASES
August Existing-Home Sales Rise, Limited Inventory Continues to Push Prices

WASHINGTON (September 19, 2013) ? Existing-home sales increased in August and reached the highest level in six-and-a-half years, while the median price shows nine consecutive months of double-digit year-over-year increases, according to the National Association of Realtors?.

Total existing-home sales1, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.7 percent to a seasonally adjusted annual rate of 5.48 million in August from 5.39 million in July, and are 13.2 percent higher than the 4.84 million-unit level in August 2012.

Sales are at the highest pace since February 2007, when they hit 5.79 million, and have remained above year-ago levels for the past 26 months.

Lawrence Yun, NAR chief economist, said the market may be experiencing a temporary peak. ?Rising mortgage interest rates pushed more buyers to close deals, but monthly sales are likely to be uneven in the months ahead from several market frictions,? he said. ?Tight inventory is limiting choices in many areas, higher mortgage interest rates mean affordability isn?t as favorable as it was, and restrictive mortgage lending standards are keeping some otherwise qualified buyers from completing a purchase.?

Total housing inventory at the end of August increased 0.4 percent to 2.25 million existing homes available for sale, which represents a 4.9-month supply2 at the current sales pace, down from a 5.0-month supply in July. Unsold inventory is 6.3 percent below a year ago, when there was a 6.0-month supply. ?Limited inventory in some areas means multiple bidding remains a factor; 17 percent of all homes sold above the asking price in August, although 63 percent sold below list price.?

Data from realtor.com,3 NAR?s listing site, shows large declines in inventory from a year ago in Naples, Fla., down 23.5 percent; the Detroit area, down 23.3 percent; and the greater Boston area, down 20.7 percent.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.46 percent in August from 4.37 percent in July, and is the highest since July 2011 when it was 4.55 percent; the rate was 3.60 percent in August 2012.

The national median existing-home price4 for all housing types was $212,100 in August, up 14.7 percent from August 2012. This is the strongest year-over-year price gain since October 2005 when the median rose 16.6 percent, and marks 18 consecutive months of year-over-year price increases.

Distressed homes5 ? foreclosures and short sales ? accounted for 12 percent of August sales, down from 15 percent in July, and is the lowest share since monthly tracking began in October 2008; they were 23 percent in August 2012. Ongoing declines in the share of distressed sales are responsible for some of the growth in median price.

Eight percent of August sales were foreclosures, and 4 percent were short sales. Foreclosures sold for an average discount of 16 percent below market value in August, while short sales were discounted 12 percent.

NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, Calif., said rising home values will encourage more people to sell. ?As the equity position of most homeowners continues to improve, some who have been on the sidelines will list their home for sale,? he said. ?Most of those owners also will be buying another home, but higher levels of new home construction going into 2014, combined with some reduction in demand from less favorable affordability conditions, will help to moderate price growth to more sustainable levels.?

The median time on market for all homes was 43 days in August, little changed from 42 days in July, but is much faster than the 70 days on market in August 2012. Short sales were on the market for a median of 98 days, while foreclosures typically sold in 52, days and non-distressed homes took 41 days. Forty-three percent of homes sold in August were on the market for less than a month.

First-time buyers accounted for 28 percent of purchases in August, down from 29 percent in July and 31 percent in August 2012.

All-cash sales comprised 32 percent of transactions in August, up from 31 percent in July and 27 percent in August 2012. Individual investors, who account for many cash sales, purchased 17 percent of homes in August, compared with 16 percent in July and 18 percent in August 2012. Last month, three out of four investors paid cash.

Single-family home sales rose 1.7 percent to a seasonally adjusted annual rate of 4.84 million in August from 4.76 million in July, and are 12.8 percent above the 4.29 million-unit pace in August 2012. The median existing single-family home price was $212,200 in August, which is 14.4 percent higher than a year ago.

Existing condominium and co-op sales rose 1.6 percent to an annual rate of 640,000 units in August from 630,000 in July, and are 16.4 percent above the 550,000-unit level a year ago. The median existing condo price was $211,700 in August, up 17.7 percent from August 2012.

Regionally, existing-home sales in the Northeast were unchanged at an annual rate of 710,000 in August but are 12.7 percent above August 2012. The median price in the Northeast was $268,800, up 7.6 percent from a year ago.

Existing-home sales in the Midwest increased 3.1 percent in August to a pace of 1.32 million, and are 18.9 percent higher than a year ago. The median price in the Midwest was $166,100, which is 10.0 percent above August 2012.

In the South, existing-home sales rose 3.8 percent to an annual level of 2.19 million in August and are 13.5 percent above August 2012. The median price in the South was $181,000, up 14.6 percent from a year ago.

Existing-home sales in the West declined 2.3 percent to a pace of 1.26 million in August but are 7.7 percent higher than a year ago. With the tightest regional inventory conditions, the median price in the West rose to $287,500, which is 18.8 percent above August 2012.

The National Association of Realtors?, ?The Voice for Real Estate,? is America?s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries. For additional commentary and consumer information, visit www.houselogic.com and http://retradio.com.

# # #

NOTE: For local information, please contact the local association of Realtors? for data from local multiple listing services. Local MLS data is the most accurate source of sales and price information in specific areas, although there may be differences in reporting methodology.

1Existing-home sales, which include single-family, townhomes, condominiums and co-ops, are based on transaction closings from Multiple Listing Services. Changes in sales trends outside of MLSs are not captured in the monthly series. NAR rebenchmarks home sales periodically using other sources to assess overall home sales trends, including sales not reported by MLSs.
Existing-home sales, based on closings, differ from the U.S. Census Bureau?s series on new single-family home sales, which are based on contracts or the acceptance of a deposit. Because of these differences, it is not uncommon for each series to move in different directions in the same month. In addition, existing-home sales, which account for more than 90 percent of total home sales, are based on a much larger data sample ? about 40 percent of multiple listing service data each month ? and typically are not subject to large prior-month revisions.
The annual rate for a particular month represents what the total number of actual sales for a year would be if the relative pace for that month were maintained for 12 consecutive months. Seasonally adjusted annual rates are used in reporting monthly data to factor out seasonal variations in resale activity. For example, home sales volume is normally higher in the summer than in the winter, primarily because of differences in the weather and family buying patterns. However, seasonal factors cannot compensate for abnormal weather patterns.
Single-family data collection began monthly in 1968, while condo data collection began quarterly in 1981; the series were combined in 1999 when monthly collection of condo data began. Prior to this period, single-family homes accounted for more than nine out of 10 purchases. Historic comparisons for total home sales prior to 1999 are based on monthly single-family sales, combined with the corresponding quarterly sales rate for condos.

2Total inventory and month?s supply data are available back through 1999, while single-family inventory and month?s supply are available back to 1982 (prior to 1999, single-family sales accounted for more than 90 percent of transactions and condos were measured only on a quarterly basis).

3Realtor.com, NAR?s listing site, posts metro area median listing price and inventory data at: http://www.realtor.com/data-portal/Real-Estate-Statistics.aspx.

4The median price is where half sold for more and half sold for less; medians are more typical of market conditions than average prices, which are skewed higher by a relatively small share of upper-end transactions. The only valid comparisons for median prices are with the same period a year earlier due to a seasonality in buying patterns. Month-to-month comparisons do not compensate for seasonal changes, especially for the timing of family buying patterns. Changes in the composition of sales can distort median price data. Year-ago median and mean prices sometimes are revised in an automated process if additional data is received.
The national median condo/co-op price often is higher than the median single-family home price because condos are concentrated in higher-cost housing markets. However, in a given area, single-family homes typically sell for more than condos as seen in NAR?s quarterly metro area price reports.

5Distressed sales (foreclosures and short sales), days on market, first-time buyers, all-cash transactions and investors are from a monthly survey for the NAR?s Realtors? Confidence Index, posted at Realtor.org.

The Pending Home Sales Index for August will be released September 26 and existing-home sales for September is scheduled for October 21; release times are 10:00 a.m. EDT.

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Date: September 23, 2013

MADISON, Wis. ? Home sales and median prices both grew at a healthy pace in August, continuing the hot real estate market in Wisconsin, according to the most recent housing report from the Wisconsin REALTORS? Association (WRA). Existing home sales were up 13.7 percent in August compared to last August, closing out a very strong summer for home sales and 26 straight months of sales growth. Home prices showed similar strength with the median price rising 6.3 percent to $152,000 in August. Median prices have been up 17 of the last 18 months.

?This has been a very strong summer for home sales, which is important for a state like Wisconsin where there are strong seasonal sales patterns,? said Steve Lane, broker with First Weber Group REALTORS? in Stevens Point and the new Chairman of the WRA board of directors. He noted that in a typical year, about 42 percent of home sales in the state take place between May and August. ?We started the year strong, and we?ve carried that momentum through the summer, which bodes well for the remainder of the year,? he said.

Existing home sales were up in every region of the state, with five of the six regions growing by 9.9 percent in August compared to August 2012. The area with the fastest growth over August 2012 was the Central region, which was up 23.2 percent. Also up by substantial margins were the South Central, increasing 18.4 percent, and the Southeast, growing 14.5 percent compared to August last year. The West was up 11.1 percent, and the Northeast grew 9.9 percent over the period. Finally, home sales in the North were up 5.6 percent compared to last year. ?While it?s not uncommon to see some volatility in sales in the northern and central parts of the state due to the large number of second homes in those areas, the more urbanized regions are more stable and were consistently strong in August,? said Lane.

Wisconsin?s median home prices grew at a solid pace between August 2012 and August 2013, increasing 6.3 percent to $152,000. This continues a trend that began in March last year and mirrors national trends of rising home prices. ?Our appreciating home values are due to a combination of moderate job growth, shrinking inventories and the fact that the there is less shadow inventory of potential foreclosures, which was depressing home prices in the immediate aftermath of the recession,? said Michael Theo, WRA President and CEO. On the job front, Wisconsin added 108,700 jobs since nonfarm employment bottomed out in February 2010, according to seasonally adjusted data reported by the U.S. Bureau of Labor Statistics. This job expansion includes employment growth of about 24,100 jobs since January 2013.

?While the most recent employment data are still preliminary and subject to revision, they do paint a positive picture of state job growth and suggest we?re moving in the right direction,? said Theo.

Statewide, there was 10 months of available inventory on the market in August, which is down from 12.4 months in August 2012. ?Inventories are even lower in the urban areas, which has put upward pressure on prices in those cities,? Theo said. Inventories in the metropolitan counties are at just 7.5 months. ?Finally, we?ve made real progress in liquidating foreclosed properties in the state,? he said. Through the first half of the year, Wisconsin foreclosures were down 37.2 percent compared to the first half of 2012.

The Wisconsin Housing Affordability Index, which stood at 215 in August, still indicates that housing remains affordable in the state. The index shows the percent of the median-priced home that a buyer earning the estimated median family income can afford to buy, assuming current mortgage rates and a 20 percent down payment for the home. ?Although affordability has been trending downward as both prices and mortgage rates have increased faster than the growth in income, excellent opportunities remain in this market for credit worthy buyers,? said Theo. ?An experienced REALTOR? is still the best way to find those bargains,? he said.

About the WRA
The Wisconsin REALTORS? Association is one of the largest trade associations in the state, representing over 12,500 real estate brokers, sales people and affiliates statewide. Sales estimates for the state are provided by the National Association of REALTORS?, which seasonally adjusts quarterly sales figures. All county figures on sales volume and median prices are compiled by the Wisconsin REALTORS? Association and are not seasonally adjusted. Median prices are only computed if the county recorded at least 10 home sales in the quarter. All data collected by Wisconsin REALTORS? Association are subject to revision if more complete data become available. Beginning in 2010, all historical sales volume and median price data at the county level have been re-benchmarked using the Techmark system which accesses MLS data directly and in real time.
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July 22, 2013 Posted by Fannie Mae

Economy Poised for a Stronger Second Half of 2013
Despite Rising Mortgage Rates, Housing Remains a Positive Contributor

Pete Bakel
202-752-2034

WASHINGTON, DC ? The ongoing housing recovery coupled with improvement in both consumer confidence and the labor market are expected to boost economic growth in the second half of the year, according to Fannie Mae?s (FNMA/OTC) Economic & Strategic Research Group. The latest jobs report showed steady year-to-date job creation and measures of consumer confidence are at or near recovery highs. Furthermore, despite a sharp increase in mortgage rates during the past two months, home sales have held up and home prices have continued to post gains, helping to keep the economy on a positive?albeit modest?growth path in 2013.

?We are keeping a very close eye on the effect of rising mortgage rates on the housing market and the economy, but our July forecast is little changed from last month,? said Fannie Mae Chief Economist Doug Duncan. ?We continue to see growth in housing, partly due to an increase in existing home sales as buyers choose to act while rates remain near historic lows. Consumer attitudes are improving amid a strengthening employment sector and we should begin to see a moderate pickup in consumer spending. Overall, we expect economic growth to come in at 2.0 percent in 2013, but further momentum later this year should help carry growth in 2014 to an above-par pace of 2.6 percent, the strongest since 2005.?

On the housing front, mortgage rates are expected to continue to rise gradually, averaging 4.7 percent in the fourth quarter of this year?about 40 basis points higher than the June forecast?but the forecast of home sales is little changed, with expectations of an 8.0 percent rise in 2013. However, while the surge in mortgage rates has not significantly hurt purchase mortgage applications, it has led to a marked decline in refinancing applications, which is expected to continue next year.

For an audio synopsis of the July 2013 Economic Outlook, listen to the podcast on the Economic & Strategic Research site at www.fanniemae.com. Visit the site to read the full July 2013 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae’s Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

Fannie Mae enables people to buy, refinance, or rent a home.

Visit us at: http://www.fanniemae.com/progress

By NAR 2013 President Gary Thomas

We?ve seen interest rates rising recently.

Rates on 30-year fixed mortgages have gone up almost a full percentage point since reaching record lows six months ago.

REALTORS and consumers are understandably anxious about what this means for the real estate market. While there is currently no evidence of rising interest rates slowing the economy, they will invariably have an impact on loans.

I believe there is reason for hope. Although it?s likely that fewer people will refinance, since they already have low interest rates, banks will still need to make money. As a result, they may need to increase loan originations. To do so, there is a very good chance that lenders could ease credit standards away from over-stringency to ensure the greatest number of qualified buyers have access to mortgage interest.

While you may be hearing concerns from your clients about rising interest rates, don?t despair. Tell your clients that it?s not necessarily bad news for real estate if rising interest rates are balanced with opening credit to more consumers.

We?re hopeful?and it?s more than just a glimmer?that if the economy can recover as much as it has under tight credit conditions, it may do even better as credit steadily returns to normal.