May Home Sales Were Up, But Appraisal Problem Clouds Outlook

by Will Smith


The National Association of Realtors (NAR) reported this morning that existing-home sales rose about 2.4 percent from April to May thanks to historically low interest rates, home affordability, and the $8,000 first-time home buyer tax credit.

The annual rate of home sales increased to 4.77 million last month from 4.66 million in April, according to NAR statistics. While the uptick in sales is a positive sign for the housing market it is actually a smaller gain than expected, which comes as something of a disappointment.

NAR chief economist and spokesman Lawrence Yun cites bad appraisals as the culprit:

“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.”

Yun warned the problem could worsen to the point that it hinders a housing recovery:

“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.”

In addition to stemming the spread of bad appraisals, NAR is pushing for an expansion of the $8,000 tax credit to all primary home buyers and an extension to 2010 (it is currently scheduled to expire this November 30th).

NAR also reported that the amount of distressed properties as a percentage of overall home sales shrank considerably, from 45 percent in April to 33 percent in May. Yun attributed this to increased activity from repeat buyers, who typically have more money to spend than first-time buyers and are therefore less inclined to buy distressed properties.

At the end of May the national housing inventory stood at 3.80 million, which would take 9.6 months to absorb at the current sales pace. Recall that 5 to 6 months of inventory is considered a normal market, while 7 months and above is considered a buyer’s market.

The national median home price for May was $173,000. The NAR cautions that this figure is “distorted” by sales of distressed properties, which are sold at a discount and pull down aggregate price values.

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This article originally published at https://dc.urbanturf.com/articles/blog/may_home_sales_were_up_but_appraisal_problem_clouds_outlook/1061


  1. andrew said at 10:56 am on Wednesday June 24, 2009:

    Both this posting and the original source miss the point. An appraisal which is below the offer price is not necessarily a “bad appraisal” - it could be that the home is overpriced. Apparently Mr. Yun is selectively forgetting that the failure of appraisers to independently value properties was one of the factors that made the housing bubble possible.

  1. Keith Sorem said at 1:12 am on Monday July 6, 2009:

    the truth is that the new system has as many flaws as the old one.  There was not vetting before implementation.  If you have MULTIPLE OFFERS above asking, and comps that support the price, then there should not be a problem with value.

    Inaccurate appraisals are a more significant problem now that before the change May first.

    It has to be noted that at the bottom of a market (speaking LA), one reason that average values have slipped is that absence of financing for homes that require loans over the $729K cap. 

    If we were selling as many million dollar plus homes as a year or so ago, the average would be higher, meaning that the average or median sale price would reflect that prices are probably actually increasing, exacerbating the appraisal issue and the need for COMPETENT, LOCAL APPRAISERS.

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