Banks Rejecting Home Sales Due to Faulty Appraisals: NAR

Problems with faulty appraisals in a distressed housing market are causing increasing numbers of home sales to fall through at the last minute, the National Association of Realtors (NAR) is reporting.

The NAR said that while seasonally adjusted sales of existing homes rose for the third straight month in May, the increase would have been even greater if not for the problem with faulty appraisals, which are causing banks to refuse to authorize loans.

"Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales," said Lawrence Yun, NAR's chief economist. "In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment."

Yun said failure to correct the problem could delay the recovery of the housing market. Yun's comments were echoed by NAR President Charles McMillan.

"To maximize the potential for a housing recovery and subsequent economic recovery, we need realistic appraisals that are based on proper comparisons and done by a local specialist," he said.

Sales prices up in four of five months

The NAR reported today that that seasonally adjusted sales of existing homes rose 2.4 percent in May, to 4.77 million units, up from 4.66 million in April. Median prices increased to $173,000, up from $166,600 in April, the fourth monthly increase in the past five months.

Yun said low interest rates and an $8,000 tax credit were key factors behind the increase. The rebound was strongest in the Midwest, where sales increased 9 percent compared to April. Sales were up 3.9 percent in the Northeast, but remained flat in the South and declined 0.9 percent in the West. Total home sales were down 3.6 percent compared to May 2008, while median prices were 16.8 percent below their May 2008 level of $207,900.

FHFA reports prices stablizing

The NAR report comes at the same time that the Federal Housing Finance Agency (FHFA) is also reporting signs of a stabilizing housing market. In its own monthly housing report, also released today, the FHFA said prices were relatively unchanged from March to April, declining 0.1 percent on a seasonally adjusted basis.

FHFA Director James Lockhart said April's numbers means the agency's House Price Index has declined only 0.3 percent over the first four months of the year, suggesting that housing prices may be stabilizing. Median home prices are now at roughly the same level they were in February 2005, according to the agency's House Price Index.

The FHFA's survey is based on purchase prices of conforming mortgages sold to or guaranteed by Fannie Mae or Freddie Mac. The NAR survey is based on data collected from transaction closings.