Existing-Home Sales Rise, But Appraisals Stall Transactions

of existing homes showed another gain in May, the first back-to-back monthly gain since September 2005, according to data released from the National Association of Realtors (NAR). Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 2.4% to a seasonally adjusted annual rate of 4.77 million units in May from a downwardly revised level of 4.66 million units in April, but remained 3.6% below the 4.95 million-unit pace in May 2008. "First-time buyers also are being drawn off the sidelines by the $8,000 tax credit, which is helping to absorb inventory," says NAR's chief economist, Lawrence Yun. "However, the increase in sales is less than expected, because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan." May was the month that the Home Valuation Code of Conduct first became effective. The code requires lenders to use appraisal management companies and was designed as a way to ensure unbiased valuations. Total housing inventory at the end of May fell 3.5% to 3.8 million existing homes available for sale, which represents a 9.6-month supply at the current sales pace, down from a 10.1-month supply in April. Yun says the appraisal problem is serious, adding that lenders are using out-of-area appraisers who are unfamiliar with particular properties. An additional area of concern is that appraisers are comparing traditional homes with distressed properties, which come at discounted prices. "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 says. "There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected." An NAR practitioner survey in May showed first-time buyers accounted for 29% of transactions and that the number of buyers looking at homes is nearly 10 percentage points higher than a year ago. "This is the time of year when we see large increases in the number of repeat buyers, who are benefiting from sales to entry-level buyers," Yun says. "Investors appear less active, but are more prevalent in areas with large price corrections." The national median existing-home price for all housing types was $173,000 in May, down 16.8% from a year earlier. Distressed properties, which declined to 33% of all sales in May from 45% in April, continue to downwardly distort the median price. "The decline in the distressed sales share likely results from an increase of repeat buyers in May," Yun observes. "First-time buyers are concentrated in the lower price ranges, which include most of the distressed sales." Single-family home sales rose 1.9% to a seasonally adjusted annual rate of 4.25 million in May from a pace of 4.17 million in April, but are 3.0% below the 4.38 million-unit level in May 2008. The median existing single-family home price was $172,900 in May, down 16.1% from a year ago. Existing condominium and co-op sales increased 6.1% to a seasonally adjusted annual rate of 520,000 units in May from 490,000 in April, but are 8.9% below the 571,000-unit level in May 2008. The median existing condo price was $173,800 in May, down 21.9% from a year earlier. Regionally, existing-home sales in rose 3.9% in the Northeast, 9% in the Midwest, fell 0.9% in the West and remained unchanged in the South. SOURCE: National Association of R


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