Home sales in the area have now increased for the past twelve months. Crain’s today reported that sales jumped 27.5% to 2,526, compared to 1,981 homes sold in June 2009, the 10th consecutive month of higher year-over-year sales for the city.
The tax credit has certainly helped spur sales in several market segments, but can this momentum continue? Unemployment and uncertain job security has removed a large majority of buyers from the market. For those that remain, there are still obstacles ahead and uncertainty and how the markets will continue to react.
Stricter lending requirements could frustrate buyers, especially those who are self-employed or are in the mid-range level in FICO scores. Low interest rates though are keeping them interested in pushing through, allowing them either lower monthly payments, or the ability to leverage against the purchase price.
Another recurring and more challenging obstacle that I am continuing to see is tighter appraisals. Reports are coming in significantly lower than expectations, even if being conservative.
A recent appraisal report came in way below expectations for a Class A home. All active comparables on the market average market times of roughly six weeks, and were all priced approximately $75,000 or greater. Closed properties also averaged approximately $50,000 or greater, and averaged similar market times. The only discrepancy found was one distressed sale, an incomplete rehab which was listed for $5,000 less the appraisal and still on the market.
This really made me question the current methodology being used. I understand that in some areas, high amounts of distressed sales in comparison to resales will have an effect on pricing. However, the majority of sales were strong resales, as well as several new construction homes – all of which sold for much higher amounts. Several of the homes also went under contract after the expiration of the tax credit. This situation was not isolated and have had several contracts stalemate or fall through.
This will have to be watched carefully, as this trend could compromise continued growth, future list prices, as well as selling prices as lending will be based off of appraisal reports. Although not a strong or direct indicator, reviewing ratios between selling and list prices will initially help map this trend.
Sherwin is a REALTOR® in the Chicago & Suburban area with @properties. Questions can be forwarded to Sherwin Sucaldito
”Sales Up Appraisals Down” by Sherwin Sucaldito is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.
Based on a work at realtyevolved.net