Monday, December 05, 2011

Appraising the 'Burgh

So various news on the economy and real estate out there.  The PG's Mark R. had a story yesterday on that place far far away: Las Vegas is Gound Zero for the America's Housing Collapse.  There is a telling quote in there that says it all in a way: "Homes never should have been appraised at this value....".  In the perfection of retrospection it is an obvious statement. 

There has been a major change in housing policy and law. Specifically the Dodd-Frank reforms have required compliance with strengthened Regulation Z (Truth in Lending) requirements put out by the Federal Reserve.  The results has been that that theregenerally must be a completely independent third party appraisal in real estate transactions. That often means an appraiser who is not as familiar with the hyper-local trends impacting real estate prices in a specific neighborhood.  That and general reaction of appraisers in a lot of places has been to flip from the overly optimistic valuations that were the norm before, to generally conservative appraisals now.  In lots of ways the new lower paradigm for appraised values has had a real impact on local real estate markets around the country

So it all is clearly a good thing given the excesses that it all is intended to prevent from happening again. Too much system-wide risk unaccounted for in the way things used to work.  But Pittsburgh may be impacted more than a lot of places by the change in appraisal norms. Given how low housing values have been here in the past, a straight up appraisal for a lot of our appreciating neighborhoods is really going to come in way too low compared to what current values are.  That or say you are looking at a home newly rehabbed by Eve Picker yet have an appriaser using as a comparable valuation a nearby parcel without any investment in it in decades.  The different values may be way too much to be encapsulated by a generic appraisal methodology even if those differences really reflect what are differences in market valuations.  There is a sort of reversion to the mean going on.

Given that the appraisal is a key to getting a mortgage this all becomes a real issue in local real estate markets.  How big a problem this is locally I can't quantify, but I'll bet this is becoming a big and bigger issue with folks trying to get legitimate mortgages for fair market value properties in certain neighborhoods.. say the South Side Flats or parts of Lawrenceville or other places.  That may be the real latent real estate story for the region these days... i.e. what has the appraisal reform meant since it was fully implemented only earlier this year.   Probably a bit more relevant to us at least than what happens in the distant land known as Las Vegas.


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