Bogus Home Appraisals May Derail Real Estate Recovery

A huge number of home value appraisals may be wrong, with most of them being much too high. That is causing banks to back away from mortgages. A house that has been appraised for $400,000 might support a $350,000 home loan. If the bank looks a the property and says it is only worth $300,000 the mortgage application gets put into the waste basket.

The over-valuing of homes could kill a turnaround in real estate and make the persistent and hard drop in property values continue longer than many economists predicted that it would.

National Association of Realtors chief economist Lawrence Yun said the appraisal problem is serious.

One of the by-products of the appraisal problem is that sellers often have to take less money for their homes than they had planned. This further depresses the value of real estate and often makes sellers take on debt to pay the difference between their mortgages and the amount they get for their homes. People who take on new, large debt burdens are not likely to be consumers. Real estate values are directly linked to consumer spending.

The problem is hard to solve. Banks almost always rely on outside firms to handle appraisals. If lenders believe the information they are getting is routinely inaccurate, they may sharply curtail their overall mortgage operations. Risk and leverage are not words bankers want to hear right now. The financial debacle of the last two years has cut lending to unprecedented lows. Bogus home valuations will only make that worse.

Majority Say Housing Prices Will Hit New Records

Despite all the negative news in real estate triggered by the nation's financial crisis, a large majority believe housing prices will rebound and hit record highs again. Nearly 2 out of 3 surveyed say they expect home prices to recoup their losses and reach the record highs attained during the real estate boom.

The Housing Predictor survey indicates that homeowners and would-be homeowners are clearly demonstrating more confidence in the economy regarding real estate than they had been. Some 62% of all those surveyed said they expect home prices to rebound and reach the highs attained during the boom. The survey asked respondents only if they expected home prices to someday reach the record high prices in housing experienced during the height of the real estate boom.

Housing price rebounds are typical of the cyclical nature of real estate patterns. However, traders on Wall Street developed new products to artificially inflate markets with mortgage lenders, resulting in the delivery of an explosive mix for the world's financial markets. Housing analysts contend it will take at least a decade or more for markets to attain the record high housing values, if they ever do again.

Some especially hard hit areas of the country have suffered from average housing deflation of 70% or more as foreclosures rise. More than 4.2-million foreclosures have occurred as a result of the foreclosure epidemic, which is at the center of the nation's economic crisis.

Housing Predictor forecasted the national real estate depression, the foreclosure epidemic and regularly conducts Predictor Polls to gauge consumer sentiment on issues related to real estate. Get the forecast for the housing markets bottom and check on the latest real estate news at housingpredictor.com.

Real Estate News - July 2009

Our July 2009 Newsletter is now online for you…

From the right Nav Menu, Find "PAGES AND NEWSLETTERS" and Select "July 2009 below "Our Monthly Newsletters".

5 Cheap Do-It-Yourself Repairs

In today's economy, everyone is looking for ways to save money. Here are 5 cheap home repairs you can make today that will save money tomorrow. (Video runs 1:29)

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Pay Off Credit Cards Before Buying a House?

A reader (we'll call him Robert to protect the real identity of this comment) wrote in to ask:

Q - "I am thinking of buying a house. I have a credit card with a balance of approximately $3,000. Should I pay this off before applying for a mortgage, or will that hurt my FICO score to pay it off and hacve no balance?"

A - About 60 days before you apply for your mortgage be sure to have that credit card paid off completely. The purpose of the 60 day advance is to make sure your credit reports are updated to show the zero balance. It's somewhat comical that in the year 2009 you have to do it so far in advance in order to ensure that your credit reports reflect the balance, but these are the cards we've been dealt.

If you can do that then your mortgage application won't have any trouble caused by credit scores.

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