Low Foreclosure Listing Prices Down Appraisals, Homebuilders
Because home appraisers base their home valuations on foreclosure listing prices and other previous home sales prices, distressed sales and foreclosure properties sales still affect homebuilders weeks or months after the distressed homes are sold.
Appraisers used previous home sales to gauge trends in home values, which have been deteriorating in many housing markets because of falling home prices.
Home builders have been struggling to survive as low foreclosure listing prices continue to clobber their new home sales and force them to reduce new home prices to break-even points and even force them to sell homes past break-even points to cut their losses.
Robert Curran, home building analyst at Fitch Ratings, said that homebuilders have been struggling against foreclosure listing prices since the foreclosure crisis began. He said that many homebuilders are even competing with their own company-built homes, which are being sold at low prices.
Oftentimes also, low past foreclosure listing prices are considered in appraisals, further reducing home valuations. According to Bill Garber, head of external relations at the Appraisal Institute, most mortgage lenders require appraisers to use home sales completed within 3 months, instead of the 6 or more months required before the foreclosure crisis began.
With the increase in foreclosure listing sales in recent months, the home sales data usually considered by appraisers include low-priced foreclosures, especially in foreclosure-battered markets like Phoenix, Las Vegas and the Inland Empire region of California.
David Ledford, a top executive of the National Association of Home Builders, said that mortgage lenders have been burned by appraisers who inflated home values during the housing boom, so now lenders are pressuring these appraisers to make very conservative estimates. Ledford insisted that making conservative estimates is contributing to the downward direction of home values.
Homebuilders also charge that most appraisers do not consider added values when appraising a new home, such as energy efficiency features.
In response to homebuilders’ contention about appraisers, Garber of the Appraisal Institute said that appraisers do not make the housing market and that they simply translate into numbers what is happening in the market.
Even so, both homebuilders and appraisers agree that falling home valuations are largely caused by falling home prices, particularly foreclosure listing prices. The Standard & Poor’s/Case-Shiller Price Index in the first three months of this year showed a decline of 19.1 percent in home prices in major U.S. cities.
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