The housing market can’t catch a break – home prices start to increase, signaling good news, but causing the search for comparable homes to suffer.
The median price of single-family, detached homes increased 1.3 percent from June, while condos and townhomes prices rose by 4.4 percent, according to the San Diego Association of Realtors’ July 2012 housing statistics compiled from the Multiple Listing Service (MLS).
Single-family home prices increased 5.3 percent in July and condos/townhomes saw a jump of 14.5 percent from July 2011.
“When home prices began to go up, appraisers did not have enough data to support the higher sales prices,” said Ashley Peterson, a San Diego real estate consultant.
“We are now just beginning to get past this hump as we now have almost three months of higher sale price data.”
In July, Peterson predicted the appraisal issues would lessen by Aug. 1, and they did, she said.
“Escrows have been much smoother lately due to having three months of higher sold prices to support new appraisals,” Peterson said.
Low inventory and rejected comparable properties can slow the sale process and possibly cause a sale to fall out of escrow.
Most escrows are 30 days with financing contingency removal within 17 days of opening escrow, according to Peterson, and she has found some banks order a second appraisal.
“If a lender has to wait for homes to close escrow to be included in the appraisal report, this can cause major delays in escrow,” Peterson said.
“If a lender cannot proceed until more comparable homes sell, a buyer may not be able to remove their financing contingencies within that contractual time frame, then a seller can cancel escrow,” she said.
Finding comparable properties may not be the issue for appraisers, said Rick Engstrom, partner at ProWest Appraisal.
Lender requirements for comparables include several applications for drafting a report. The lenders can only lend up to so much money, he said.
“The lenders say, ‘Why should we lend $400,000 when we feel the predominate price on the block is $320,000’ – and those are all REOs,” Engstrom said.
The condition of the property is a factor, he said. If someone owned an older car and took good care of it before putting it on the market, then there would be cars of the same make and model, but not the same condition and at a lower price, to compare it to.
“There are still sales out there, it’s just how do you pick the sales? Do you pick the ones in comparable condition or do you go to the junk yard?” Engstrom asked.
In downtown San Diego and the surrounding areas, Peterson has noticed a lack of inventory, creating a supply issue that has driven prices up over the past couple months.
Transactions in those areas brought in multiple offers, bidding up the list price.
There were 2.39 million existing homes available for sale nationwide at the end of the second quarter, according to the National Association of Realtors.
That is down 24.4 percent from the close of the second quarter of 2011 when there were 3.16 million homes on the market.
There has been a steady downtrend since inventories set a record of 4.04 million in the summer of 2007.
In June, John Altman, a broker with JT Altman & Associates, said the active multiple listings in San Diego were down 23 percent year-over-year, and there were only 6,300 units of inventory – about 2.2 months’ worth.
A seller’s market would have six months' worth of inventory, he said.
“It was difficult to find comparable homes that have sold because lenders need three closed transactions that support the higher sales price," Peterson said. "Since we have seen an increase in listing and sale prices in certain areas throughout San Diego County, this was an issue for lenders a couple months ago, but with May and June under our belt, appraisals are more likely to come in at value.
“I don’t think it’s a case of rejecting comparable properties, but a case of not having enough to build a complete appraisal,” she said.
It’s going to take a while for this system to change in the marketplace, Engstrom said, and the upcoming election could have an effect on when the problems will change.
“I’m not optimistic for a short-term fix,” Engstrom said.
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