A friend of mine was all psyched a couple of weeks ago when she signed a contract for a condo in the Culver City area. She had been shopping at or near the “low end” of the Los Angeles area housing market — $300k or less. I have heard from more than one prospective buyer that, at this price level, there has been a bit of a buying frenzy. Sellers are listing the homes for lowball prices in order to attract interest, and then buyers are bidding up the prices, offering cash, avoiding contingencies in their contracts, etc. And the federal $8k tax credit is bringing in a lot of first time home buyers, such as my friend, at this level.
But my friend’s excitement turned to frustration and heartache as her lender’s appraisal came in many thousands below her contract price. She said that her lender has only been looking at “comps” from the last three or four months, when home prices in our area have essentially been bouncing along the bottom of the trough. Just two years ago, my friend’s prospective condo was sold to the current owner for many thousands more than my friend’s successful offer. Apparently, however, the bankers feel that area home prices should be even lower than they are now.
I get why the lenders are not looking at prices from two years ago, when the housing bubble was bubbling, to determine home appraisal values today. But given that today’s home sale prices, including my friend’s contract price, are quite a few percentage points lower than they were a couple of years ago, and that we’ve already gone through a major housing market crash and overall economic crash, it’s difficult to understand why today’s prices are not seen as representative or nearly representative of today’s home values. It seems like some lenders are being so skittish that a depressed home sale market resulting from their lack of lending could become a self-fulfilling prophecy.
Perhaps more importantly for our economy, the business of banks and other lenders is supposed to be lending. If the lenders aren’t lending, what on earth are they doing?