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Tight Lending, Low Appraisals Dampen Realtor Confidence

by devteam September 4th, 2012 | Share

The National Association of Realtors® (NAR)rnsaid that Realtors are expressing less confidence about overallrnmarket conditions, buyer and seller traffic, home prices and other issuesrnrelated to real estate.  The REALTORSrnConfidence Index (RCI) for July indicates that, even as home sales and pricesrnare improving Realtors see several factors constraining recovery.</p

The RCI is derived from a nationwidernsurvey of Realtors who are asked to measure market conditions in their arearnboth currently and as expected over the next six months as strong, moderate, orrnweak and a number of other questions relating to home prices, traffic, andrnmarket conditions.  A score of 50 on eachrnindex is the midway point between “strong” and “weak” conditions.</p

The RCI indices measuring marketrnconditions fell for all three property types, but performed best forrnsingle-family homes which remained above 50 for both current conditions (54)rnand future expectations (56.)  Currentrnand six month outlook scores for townhouse properties were 35 and 38rnrespectively and for condos, 28.9 and 32.</p

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According to survey respondents, amongrnthe factors holding back a full housing recovery are tight mortgage standards,rnstringent and slow bank approvals, low appraisal values, tight inventories relativernto demand which resulted in multiple bid situations in some cases.  Contributing to the tight supply was thernreluctance by sellers to list at current depressed prices and banks holdingrntheir owned real estate off market.  Atrnthe same time, there is a continued concern that a big release of shadowrninventory in the future could depress home prices.</p

Realtors report that prices arerncontinuing to firm up and that demand is increasing faster than supply in somernmarkets.  Sixty-four percent of respondentsrnto the NAR survey reported seeing price increases of 10 percent or more.  NAR says that this is consistent with its ownrndata on existing home sales which showed a median price increase from $180,300rnin May to $189,400 in June.   Eighty-fivernpercent of respondents expect constant or higher prices over the next year. </p

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The indices measuring buyer and sellerrntraffic continue to indicate an imbalance between the two.  Buyer traffic declined slightly to a score ofrn56, possibly because of tight lending and appraisal standards as well as therncontinuing slow economy.  Seller trafficrnhowever has remained flat at 40 from near the beginning of the year.  </p

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Marketing time seems to be droppingrnquickly.  Thirty-three percent ofrnRealtors indicated that recently sold properties had been on the market forrnless than a month, up from 30 percent in April; 59 percent were sold withinrnthree months.  The proportion reportingrnproperties on the market for six months or more fell to 21 percent from 30rnpercent one year earlier.</p

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Twenty-four   percent of survey respondents said they hadrnrecently sold a distressed property, down from 31 percent in June 2011.  Over a third (39 percent) of these sales wererncash transactions.  Realtors reported anrnaverage discount of 20 percent on foreclosed property and 15 percent on shortrnsales.</p

First-time buyers continue to constituterna smaller share of the buyer market than has historically been noted.  During July approximately 34 percent of Realtorsrnreported selling to a first-time buyer, up from 32 percent in June.  Typically the market share is around 40rnpercent.  NAR said this low sharernreflects in part the difficulty in securing financing and the delay with distressedrnsales.  They also note that investorsrnwith cash have crowded out first-time buyers who typically requirernfinancing.  Investors represented 16rnpercent of the market in July.</p

More than a third of buyers obtainingrnpurchase mortgages during July had down payments of 20 percent or more comparedrnto 35 percent in June.  The percentage ofrndown payments of 11 to 19 percent rose from 4 to 6 percent of mortgagedrnpurchasers.</p

Appraisals continue to be a problem withrnabout a third of the respondents reporting issues within the previous threernmonths.  Ten percent reported the problemsrnresulted in a contract cancellation, 10 percent reported a delay, and thernremainder that the appraisal problem led to a lower final price.  Among the issues reported were appraisers failingrnto keep up with the appreciation in market values, slow turn-around times, andrnout of town appraisers lacking sufficient knowledge of local conditions. </p

One of the most frequent comments fromrnrespondents related to what was called unreasonably tight creditrnconditions.   Respondents said lendersrnare taking too long to approve applications, require excessive information fromrnborrowers, and seem to be focusing on making loans only to individuals with thernhighest levels of credit scores.

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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