Last year, when Congress passed the first tax credit for first-time buyers, raised the conforming loan limits and made FHA a viable loan option in our area for the first time in 12 years, we in the real estate industry hoped that the market could return to a more normal state. But then the worldwide economy crashed and more and more people started losing jobs, and predictions of further huge price drops in the housing industry kept the market at pretty much of a standstill in our little corner of the world. Anyone who didnâ€™t really have to sell, didnâ€™t. Then some of the people who hadnâ€™t really had to sell earlier in the year could no longer hang in there or their circumstances changed, and they started to sell. There have been some gems come and go in the last few months. Case in point, 2525 Medlow, a midcentury ranch over 2000 sqft in Eagle Rock, sold last year for $575,000. 4848 Ray Court, Eagle Rock, in escrow for well over its $499,000 asking, 716 Moon in Mt. Washington, a 2-bed, 2-bath midcentury with an incredible view just sold for $567,000. All of these could have sold for more a couple of years ago, and will be worth more again in a few short years, just watch.
But right now buyers are having a hard time. The first-timers who are trying to take advantage of the $8,000 federal tax credit and everyone qualified for the new FHA loan limits are being outbid by investors and people with 20% or more down payment and regular loans. In the last few months, banks have been pricing their foreclosed inventory at fire sale prices, teasing these poor FHA buyers into believing that at last they can catch the dream, only to find their hopes ground under foot by all-cash investors and insider pals of someone who makes an offer before the property even comes on the market.
One really nasty result is that some neighborhoods have seen their price point dive because only the foreclosures at fire sale prices are selling there. Now with the market picking up, we have a new problem: obtaining a fair and realistic appraisal.
As of May 1, the Home Valuation Code of Conduct came into effect. Essentially, it makes the appraisal process for any Fannie Mae or Freddie Mac loan more expensive, cumbersome, and in the end less accurate than the former system. For a complete discussion of this, check out http://reesespiecesofrealestate.com/2009/05/02/new-rules-for-home-appraisals-went-into-effect-may-1/ . Even without this new code, appraisers have been erring on the side of being overcautious in their appraisals because of the bad press theyâ€™ve received. Also, in many neighborhoods, the sales of bank foreclosures and short sales grew to such numbers that appraisers have had to use them as comparables even though a nice home with a real human seller is generally worth more than a distress sale because of its condition. Appraisals are always difficult in an appreciating market and now they are going to be difficult no matter what market weâ€™re in. What to do? The person who pays cash has an advantage here, but they usually want to buy the home at a significant discount. Iâ€™m in an escrow where there is no appraisal contingency, but Iâ€™m afraid we canâ€™t insist on that every time, much as Iâ€™d like to.
One way you can help is to sign the petition on the website, http://www.hvccpetition.com. The loan and appraisal industries are overreacting to the scrutiny theyâ€™ve been under. Those in favor of stringent regulation are trying to reduce the fraud that has riddled the industry in the last few years, but the consequence to this â€œcode of conductâ€ may be to grind to a halt the very loan programs that should be moving us forward. Even though FHA appraisers are not currently affected by the code, they are regulated by other restrictive rules that make it difficult for these entry-level buyers to actually buy the homes they can afford. For example, FHA appraisers are stricter with the condition of the property concerning both repairs and unpermitted space. And the topper is that the FHA loan process has been taking far too long. Every Realtor I talk to who has an FHA deal has a tale of escrow dragging on for weeks beyond the scheduled close date. The story is that the lenders are overwhelmed, but they are overwhelmed by overcautious rules more than understaffing.