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It’s no surprise that the nation’s sluggish economic recovery may be slowing down the housing market (and visa versa).  But Realtors in Colorado and elsewhere around the country are reporting that mortgage financing and appraisal hurdles are increasingly playing a major role in knocking deals out of escrow and holding back the housing market’s turnaround.

Time magazine reported that 16 percent of all sales contracts failed in July because the buyers could not secure a mortgage, according to figures from the National Association of Realtors. In other words, one out of every seven contracts is going down due to problems that buyers are having getting mortgages. To look at it another way, writer Alison Rogers says, there are tens of thousands of people who are trying to buy homes but can’t because they’re denied a loan.

In her article, Rogers – a Manhattan Realtor and founding editor of the New York Post’s real estate section – concedes that it’s possible that the system is doing its job, and that those denied buyers shouldn’t get loans. “Maybe they’re poor credit risks, or their employment isn’t stable, or they’re trying to overpay for their target properties,” she said. “But I doubt that’s the only thing going on because the percentage of denieds spiked so suddenly, from 4 percent in May to 16 percent in June.”

While July turndowns are steady from June, it does look to Rogers like that quadrupling earlier this summer reflects that, “a credit spigot was shut off very, very suddenly.”

Cash purchasers, on the other hand, haven’t fled the market. Some 29 percent of July sales were all-cash transactions.  NAR reports that “the bulk” of these are investors.  “Those with means, it appears, still believe in housing, perhaps lured by the slump’s relative bargain pricing. (Or they’re fearful of the daily rollercoaster of the global equities markets),” the Time article noted.

Difficulty in securing financing isn’t the only hurdle buyers are facing today. Local Realtors are reporting that surprisingly low appraisals are preventing many sales from going through. Colorado agents aren’t the only ones who are experiencing this issue. The Wall Street Journal, in a recent front-page article, noted Realtors all across the country are running into the same problems.

According to the Journal’s reporters, real estate appraisers, who were criticized by some for being too generous in their property valuations before the housing market fell, may be going overboard in the other direction.

“One of the conclusions from the housing bust: The appraisal system was broken,” the Journal said. “One of the conclusions some have drawn from the struggling recovery since then: The appraisal system is still broken, but in a different way. There is little doubt that home values have depreciated sharply in recent years for the most basic of economic reasons: excess supply of homes on the market and weak demand. But some realtors, home-sellers and economists believe low-ball appraisals also are undermining a housing recovery.”

The Journal said some real estate professionals believe that lenders are pressuring appraisers to come in with lower estimates. Banks also are using less-experienced appraisers, who often don’t appreciate factors that make a home worth more, they say. And valuations are being heavily influenced by distressed sales priced at a discount to the rest of the market.

Lenders are “instructing appraisers to be a little conservative, and that responsibility on the one hand is seen as credit tightening and, on the other, as exacerbating the housing problem,” Columbia Business School economist Chris Mayer told the Journal.  A research paper last year titled “How Much Is That Home Really Worth?” by economist Leonard Nakamura at the Philadelphia Federal Reserve, cited a downward bias in appraisals.

In talking with Coldwell Banker agents around Colorado, there have been many anecdotes about sales being slowed down, renegotiated or even lost due to appraisal and mortgage financing issues. It does seem to be happening more and more these days.

While it’s important for lenders and appraisers to be cautious and prudent given the problems of the past, they also need to be reasonable in their approach and make sure that the pendulum hasn’t swung too far in the other direction. The recovery of the housing market is too important to throw more hurdles in its path

Below is a market-by-market report from our local offices:

Boulder – The last two weeks in August tend to slow down due to parents getting kids back to school.  While the numbers are down when comparing these numbers to two weeks ago they are not significantly down from the same period in 2010.  Only new listings taken are down significantly during the same period in 2011 & 2010.  This is a continuing trend in 2011 of the lowest inventory levels in the past ten years when comparing month to month levels such as August to August.

Colorado Springs – Showings and sales have been staying steady overall.  Most of Colorado Springs’ school districts have started back to school over the past few weeks.  This is keeping listing inventory at a steady level, as buyers have tried to make the transition into the district of choice by now.  Buyers are still in the market to purchase homes with interest rates in the local market still at historic lows for a 30 year loan.  Foreclosure activity has shown a sharp decrease in the Colorado Springs market.  Overall, a very steady Real Estate Market.

Denver Central – It still looks like this market is holding its own.  For the last couple of months everything seems to be pretty steady.  A lot of move-up buyers are still on the fence right now waiting to see what the politicians do and to see what happens with the stock market.

Larimer County – Median sales continue to creep upward with the July median sales price for single family homes in Fort Collins, tipping over $250,000.  With the majority of closed units in the $250,000-$299,000 price range, it is readily apparent that this price point is the hot ticket and stabilizing prices for well-maintained homes in desirable locations.  There are still lots of great deals out there both below & above this range – but the qualified buyers are fewer and farther between.  Investors continue to snap-up investment properties as the rental market continues showing market strength with vacancy rates in the low 6% range.  With the days getting shorter and autumn quickly approaching – there is some great inventory in the marketplace with super-favorable interest rates.  Don’t wait until the newspaper or CNN or Case-Schiller verifies that the market has turned for the better.  It may be too late!!!  Contact your Coldwell Banker agent today for a market snapshot of your home and see where it sits in the current marketplace!

North Metro – The Coldwell Banker North Metro office continues to help buyers & sellers close on homes. Set to close 110 properties in August, which is up slighlty from a year ago at the same time.  40 new homes are on the market in August with prices ranging from $80000 to $1,500,000.  There was a little slow down the first part of August in the number of showings our listings were having.  Was it vacations? Getting the kids back to school?  Not quite sure what to attribute that to, but in the past week we’ve seen an increase in the showing activity & at open houses.  If a home is priced “to sell” in this market, multiple offers are being submitted.

Parker – Finally, there are more homes hitting the market again.  With the increasing listing inventory, the showing activity is going up as well.  Sales activity is holding steady on a higher level than the recent months.  Because of the stable, low interest rates and with the steady buyer activity, values have stabilized in most of Douglas County!  Parker is preparing for the big Ride the Range event, Monday September 12th.  We are expecting the riders around 2:15PM.  What a great experience it will be!

Denver Central – The agents are very busy with buyers.  Believe it or not, there is a lack of good, saleable properties.  When we contact a neighborhood directly with a request to sell to a qualified buyer, there are several responses from potential sellers.  The sellers seem to be hesitant to place their homes on the market, yet they want to sell.  Sellers are encouraged to contact a CB Real Estate agent for a market analysis to see if it makes sense at this time to sell.

That’s it for now!  Make it a great week!

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