Yesterday’s front page article in the Wall Street Journal really underscored the foundational key to the housing market’s recovery, as well as the broader economy’s. My recent experience with lenders, and consumers attempting to obtain real estate financing, strongly suggests that the strength of this year’s market will be closely tied to the willingness and/or ability of banks to lend in 2010. I am much more optimistic about this matter than I was in 2009, however we are far from being out of the woods.
- The WSJ article states that US banks last year posted the largest decline in lending since 1942.
- According to the article and the latest FDIC quarterly report, “while top tier banks are recovering at a faster clip, the rest of the industry is still suffering.” Those plagued by looming commercial real estate losses are fighting for survival:
- Data from FDIC Quarterly Report — Banks on the Brink
- According to FDIC Chairman Sheila Blair, “we are bumping along the bottom of the credit cycle”, and the number of bank failures in 2010 will “eclipse” the 140 failures we saw in 2009.
So, what’s the practical translation of this information to our reality within the Lamorinda real estate market? Clearly, there are early indications of a much more optimistic environment with willing sellers and willing buyers. The question is whether the lenders will allow the free marketplace to prevail so that buyers and sellers can enter into meaningful contracts that won’t be tainted by the shortcomings of the financial industry or simply a lack of liquidity.
Early indications suggest we will still have major issues with lenders and appraisals in 2010, based upon the onslaught of calls we’ve received recently from owners of Lafayette real estate who are attempting to refinance their loans. Additionally, a handful of buyer transactions that we’ve represented in the last couple of months also suggest that lending policies have swung woefully too far to the right.
- Banks are still using incompetent, out-of-area appraisers with no understanding of the local market.
- A call from a Lafayette real estate owner this week involved his attempt to refinance a 2500 sq. ft. home in the Reliez Valley that was rebuilt from the studs up just 3 years ago. The Citibank appraiser gave the home a valuation of just $800K and used “comparative sales” data from Pleasant Hill and Martinez to arrive at his valuation!
- According to the property owner, the appraiser had just completed an appraisal in Sacramento, stopped in Lafayette to do this appraisal, and was headed to Daly City to do the next one.
In this particular situation, the appraisal is probably off by a factor of about 50 percent. It’s an extreme example of what we are seeing on a much too frequent basis. If this had been a purchase transaction, the incompetence of the appraiser would have likely caused the escrow to fall apart. In aggregate, these types of situations are market-affecting.
Should you find yourself in a position similar to this poor Lafayette real estate owner, don’t accept the bank’s appraisal — challenge it! You are the one paying for the appraisal and you deserve a competent analysis. An appraiser of Lamorinda real estate should NEVER go out of the area for “comparative sales” data, except under the most extreme situations. If you need comparative sales information to support a competent analysis, consult with your trusted real estate professional. If you don’t know one, contact us. Competent advocacy will be imperative in the 2010 real estate market!
