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Appraisals suggest homebuyers vastly overpaying in hot market – Press Enterprise

“”Bubble watchDelves into trends that may indicate future economic and / or housing market problems.

Buzz: The Home Price Index, which measures the opinion of Southern California appraisers, suggests that the rise should be half the recent median selling price. This is a red flag for the buyer.

Source: A biannual survey by the Southern California Real Estate Research Council uses volunteer appraisers to reassess the same 308 detached homes across seven counties.

trend

According to my credible spreadsheet, appraisers found that the valuation was 50% below the median selling price in the region. This was a record high in recent months.

Since 1943, the Cal Poly Pomona-based council has tracked the value of homes with its own indicators. This group of real estate sampling aims to avoid the mathematical problems used in many price indexes. That is, a wide range of combinations of what is sold can distort the median or average price.

According to the latest appraisal index, house prices are rising at an annual rate of 9.7% in April, the fastest rise since October 2014.

Meanwhile, the median selling price, which is widely discussed, rose 19.3% year-on-year. This was the largest increase in the median since February 2014. The median benchmark is derived by DQ News using all monthly sales data in the six county regions. (Santa Barbara County is an outlier between valuations and sales.)

Appraisers discovered a wider market difference in October 2020 when they saw an annual profit of 4.8%, or a 63% gap, against a 13.1% profit from all selling prices. Did.

Anatomy

These differences are not just about stingy appraisers and their conservative estimates.

Part of this valuation spread is likely due to a significant shortage of low-priced homes for sale, with a high median. In 2013-14, supply shortages spurred a short-term double-digit surge in median selling prices in the region, and the valuation index was slow to catch up with the surge.

However, some of the 2021 rating ditches suggest an unreasonable enthusiasm by house hunters desperately looking for new bargains. Last year’s historically low mortgage rates have significantly distorted the market as buyers aggressively paid for new settlements.

Note that these two measurements were very close in the five years before the coronavirus twisted the economy. According to the median, local home price increases averaged 5.7% on the valuation index, compared to only 5.4%. Yes, the appraiser was actually more generous during this period.

How do you foam?

On a scale from zero bubbles (no bubbles here) to 5 bubbles (5 alarm warnings) … 5 bubbles!

This pandemic evaluation trend is very disturbing as appraisers are paid to grow up in the room and expect to act as a brake on the overheating market.

On the day before the pandemic, buyers and sellers often make fine adjustments from lenders to compromise on price cuts or kill deals if homes are sold above their valuation.

However, the current feeding frenzy of homes is so intense that today’s buyers often abandon the contingency of the appraisal. That is, it absorbs the cost (and risk) of finding an overestimate.

This is not a geeky math problem that plagues appraisers with DQ News. It is a warning that there is a big gap between valuation and selling price. Buyers may be significantly overpaying.

Postscript

Look at the changing valuation gap between the valuation and the median selling price by county. In April, all six valuations fell below the selling price display. In 2015-19, before the pandemic, only one county had a valuation profit below the selling price, and the two counties were tied …

Los Angeles: Appraisal index increased by 9.6%. This is well below the 19% rise in median selling prices in April. The pre-pandemic profit averages 6.3% annually from the valuation, the same valuation as if all sales were tracked.

Orange: April selling prices rose below 15.5%, up 8.8% by valuation. Before the pandemic? 4.6% increase from both indexes.

Riverside: The rise in selling prices in April was below 19.6%, up 10.7% by valuation. Before the pandemic? 6.4% from evaluation and more than 6.3% from sales.

San Bernardino: April selling prices rose below 22.7%, up 8.5% by valuation. Before the pandemic? 5.4% from the evaluation of less than 7.3% from sales.

San Diego: April selling prices rose below 17.8%, up 11% by valuation. Before the pandemic? It is slightly above 5.7% from evaluation and 5.6% from sales.

Ventura: April selling prices rose below 18.6%, up 6.7% by valuation. Before the pandemic? It is slightly higher than 4.6% from the evaluation and 4.5% from the sales.

Jonathan Lansner is a business columnist for Southern California NewsGroup.He can reach at jlansner@scng.com

Appraisals suggest homebuyers vastly overpaying in hot market – Press Enterprise Source link Appraisals suggest homebuyers vastly overpaying in hot market – Press Enterprise

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